Despite around 4000 advisers leaving the industry in 2019, advice acquisition leaders say business sales and mergers were curbed by a reluctance of advice firms to pay for client books that aren’t profitable enough.

“It was the least amount of transactions that I’ve done in 16 years,” says Steve Prendeville, managing director of advice mergers and acquisitions brokerage Forte Asset Solutions.

The Hayne royal commission had an obvious effect on the market, Prendeville explains, which stalled during Q1 last year as the industry held its breath in anticipation of the final report recommendations and the prevailing government’s response.

Subsequent to the final report’s publication, Prendeville says he received “four years-worth of work in about 3 months” as spooked advisers enquired about selling their business. The quality of practices for sale, however, rarely matched buyers’ standards.

“When I had a look at the businesses they weren’t prepared to go to market, and if I had taken them to market they would have been punished because there was so much work required to meet the future standards,” Prendeville recalls, noting that insufficient client data and outdated business models, as well as a lack of transparency and exposure to conflicted revenue all put off prospective buyers.

Steve Prendeville

“You don’t want to bring on other people’s problems when you’ve got your own,” he says. “When in doubt, stay out.”

There are some buyers that are confident in taking on a “renovator’s delight”, Prendeville explains, especially after re-engineering their own business. Most, however, are wary of purchasing a client book that has a pricing model markedly different from their own. Transitioning clients between pricing models is problematic, he says, “especially if you don’t have the leverage of a long-term relationship”.

John Birt, who’s firm acts as a buyers’ agent for advice business acquisitions, says that his phones “wouldn’t stop ringing” after the royal commissions final report was delivered in February.

“We accumulated about 50 to 60 [selling] businesses in a four-month period,” he says.

Despite reporting a strong year in sales, Birt agrees that wary buyers were reluctant to pay the asking price for client books they saw as compromised. “A lot of people weren’t happy with the price they were getting and decided not to sell,” he says.

While Birt believes there is more activity in the market than Prendeville does, he agrees that low-quality books have made practices hard to sell. “The prices of the lower-end books have certainly reduced,” he says. “Probably about 20 to 30 per cent.”

The reprieve on education standards for advisers, announced by the government on August 30 last year, is also cited as a reason for less transactions than anticipated. The extension – which pushed the FASEA exam deadline out 12 months to 1 January 2022 and the education deadline out two years to the start of 2026 – took the pressure off advisers by giving them more time to meet the education mandate or to prepare a sale of their practice.

Prendeville says the reprieve meant advisers didn’t have to “run for the door”.

“A lot of them thought they needed to sell before 2024, but the fear factor dissipated,” he adds.