Financial planning practice owners are becoming increasingly likely to buy or sell as greater certainty takes hold across the industry, according to a consultancy that assists in brokering such deals.
Tony McDonald, director of T&C Consulting, says he has been receiving “a lot more inquiries over the last three or four months”.
He believes that “doing nothing is not an option” any longer for practice owners, who need to act to ensure their businesses remain relevant and competitive in the changing financial advice landscape.
On a rainy Sydney morning, McDonald says the industry is currently experiencing what could possibly be described as a “perfect storm”. He refers to the combined impact of the Future of Financial Advice (FoFA) regulations, the Financial System and Senate Committee inquiries along with demographic challenges.
The need to act now
“I think there is a growing realisation that you have to do something,” he says. McDonald explains businesses either need to re-engineer their practice models, or “get out” via a succession plan.
“But to do that, you have to clean up your business first…[business buyers] aren’t paying for yesterdays earnings, they’re paying for tomorrow’s earnings,” McDonald adds.
“New business from new clients is still missing in the industry,” he says.
McDonald also alludes to something he sees as a sleeper issue for the financial planning industry, with many practices holding extensive legacy books of business.
He points out that just as financial planners need to ensure all their dealings with new clients pass the best interest test, so too do their arrangements with past clients.
“I’d be saying ‘I need to look at my back book [of clients],’” McDonald says.
Emotional paralysis
Providing a different perspective, Paul Tynan of Connect Financial Service Brokers believes a reluctance to act persists throughout the ranks of financial planners.
He refers specifically to an older demographic within the industry, especially those who are part of the ‘baby boomer’ generation. Tynan believes they need to adapt to the considerable changes that are taking place around rising minimum levels of education and the establishment of a national register of financial planners.
He suggests many practice owners hold an emotional attachment to their businesses, which prevents them from facing up to important issues, especially succession and exit planning strategies.
“Of course any self employed business owner is entitled to receive the best price possible to reflect the years they put into their practice – but they must also take into account the drivers influencing price in the current marketplace”.
With such planning often taking at least 12 months to put in place, he says practice owners need to start thinking about these things now.