It’s still about growth through acquisition for financial advice firms looking to the future, but not as it’s always been known, says Paul Barrett, chief executive of AZ Next Generation Advisory, the acquisitive Italian-backed wealth manager.

Client registers and businesses put up for sale today are the subject of a style of due diligence not seen before – even as recently as a year ago, says Barrett, who’s led about 45 advice business transactions to expand AZ NGA to a $7 billion funds under advice network, from a standing start three years ago.

What’s different today is acquirers want to look at and separately price every revenue line, particularly when it comes to acquisitions of a book of clients, Barrett says.

“Flat fee for service, asset-based fee for service, trail commission, adviser service fees versus other types of service fees – you break it all down and apply a different multiple to different revenue lines and give consideration for average client balances, ongoing service contracts. [You look into] whether they’re being met or not met, opt-ins, etc,” Barrett explains. “It wasn’t long ago when we’d buy a client book for a premium somewhere between 2.5 times and 3.5 times [recurring revenue] and not differentiate between revenue lines.”

The revelations from April’s hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, when financial advice and wealth management firms were in the spotlight for stringing along disengaged clients unaware they were paying trail commissions for advice they’d never received, hasn’t halted acquisitions but it’s made acquirers more motivated to find out exactly what they’re buying, says Greg Quinn, executive director at specialist M&A advisory Chase Corp.


Advice practices with large per-adviser client registers are being put under the microscope by buyers and are potentially being discounted in the open market, says Quinn, who is working with at least eight financial planning practices looking to buy or sell.

“If one adviser tells you he has a book of 1000 clients, you just know most of his client base is not engaged,” Quinn says. He adds that advisers with 200 clients or more are “pretty tapped out” when it comes to properly servicing those clients, a situation buyers are acutely aware of in the current environment.

When it comes to conducting due diligence on a new advice business and client base acquisitions, thinking about it from the point of view of what an ideal client looks like is a good start, says Sarah Abood, chief executive of Sydney-headquartered Profile Financial Services.

“Our ideal clients would definitely be those who value advice and are used to regularly engaging with their planner and team,” Abood says. Profile has been acquisitive in recent years, growing to 37 staff across four offices in Sydney and the Central NSW, with a little over $550 million in funds under advice.

Clients who use email to communicate with their adviser tick another box for Abood, who is always trying to find ways to measure client engagement.

Acquiring well also means digging a little deeper when it comes to considering a client base that appears to be inactive at first blush.

“Sometimes a transaction can be a positive for these clients, it’s often a trigger to get them thinking again about their finances [and get them to] come in for a chat and check out the new team,” Abood explains. “We do see a range of clients in most transactions. Particularly for longstanding businesses, there’s often a combination of many highly active clients as well as some others who haven’t responded to a review offer for a while.”


Education is increasingly playing a significant role in valuing acquisitions and could even be a factor stalling deals in the current market, Barrett notes.

“Education standards have an impact on adviser tenures and there is still a bit of greyness there,” he says. “Until we understand [the impact of new education standards] it’s very hard to do a 10-year deal or buy a firm with multiple shareholders and understand the impact on adviser tenure.”

Barrett’s own research reveals that the attrition from advisers leaving the industry when the Financial Adviser Standards and Ethics Authority implements new education standards could be as high as 20 per cent – even within the higher quality practices.

External factors aside – such as education standards and the availability of quality and engaged client bases – the growth trajectory of acquisitive advice businesses such as AZ NGA and Profile will be determined by a series of internal factors, both Barrett and Abood admit.


“After a big jump in growth, there’s often a need to refocus internally for a space, invest in the staff, compliance, finance and HR functions, to ensure they can keep delivering as we grow,” Abood notes.

Barrett describes the need for growing businesses in the advice space in particular to be able to manage growth to be “operationally fit”. He adds that AZ NGA has “slowed down a bit” this year but he is already looking forward to the next phase of acquisition opportunities.

Abood says growth is important for many reasons.

“Greater scale gives us more power to negotiate better fee deals for clients with providers, and to invest in technology that gives clients a more consistent and repeatable experience,” she explains. “It also means clients have a team behind them and continuity of support, despite leave, illness or retirement.

“For planners, growth means there’s a career path and a great group of colleagues to teach and learn from and who can provide mutual support. Plus, it means we can afford pay rises and bonuses every so often,” she says.

She adds that growth always has to be balanced against the need to continually invest in compliance to meet ever-changing and growing regulatory requirements.

Despite the changes in the advice landscape, with the royal commission recommendations still pending and the impact of FASEA still unknown, the appetite for acquisitions remains “lively”, Chase’s Quinn says.

Some advice practice owners are trying to get out in front of the commission’s recommendations by selling sooner rather than later, he notes.

For advice practices that haven’t spoken to large proportions of their client bases for a while, there’s no good news likely to come out of the royal commission, which is due to make its final recommendations at the end of February next year.

“The best-case scenario is there’s a phase-out period [for conflicted remuneration],” Quinn says. “Buyers in the market don’t want to be left with
older legacy businesses with fees-for-no-advice.”


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