Insurance advisers planning to leave the industry when FASEA’s exam qualification requirement comes into effect at the end of the year are risking significantly depressed valuations by stalling the sale of their books according to advice business brokers.

Radar Results’ John Birt says demand for life insurance books has “never been higher”. Yet while hundreds of risk advisers are expected to leave the industry rather than complete an adviser exam they see as ill-suited to their niche, with only nine months to go there has never been fewer risk books on the market.

Birt says he usually has around 30 insurance-only advice businesses up for sale at this time of year, but at the moment only three are registered. “My consultants are telling me there’s nothing out there,” he says.

Radar Results’ John Birt

The consultant believes most risk advisers who are planning to leave the industry at the end of the year are delaying their exit because they want to continue running the business – and receiving revenue – for as long as possible. This strategy may backfire, however, if a flood of risk books hit the market in the final quarter of the year.

“Imagine what would happen to valuations if a thousand books come up for sale in November/December,” he says, noting that the swing from a seller’s to a buyer’s market could be “rapid”.

While the value of insurance advice books is dependant on many variables, most advisers currently hope for a valuation multiple of approximately two-times annual revenue.

“That two-times multiple won’t be there at the end of the year,” Birt says. “They’ll be lucky if they get a full year’s worth of revenue.”

Exacerbating the anticipated bottleneck is the possibility that many insurance advisers who do intend on completing the exam may in fact fail and be forced to sell their books. Many of these advisers are on their second or third attempt at the exam, yet the collective pass rate for these ‘second-sitters’ is much lower than the collective group – 59 per cent compared to 89 per cent.

Birt believes the market is sitting through the calm before the storm, and the dearth of insurance advice businesses up for sale now will lead to a bottleneck later in the year. Such is his confidence that he has already hired two new consultants to accommodate the anticipated influx of sellers.

Centurion Market Makers’ Tim Lane

Centurion Market Makers partner Tim Lane agrees that the insurance advice sector is eerily quiet. “We’ve only had one risk book come across our desk in the last 12 months,” he says. “Usually you get as many insurance businesses up for sale as you do general advice businesses.”

A lot of insurance advisers are “waiting and hoping”, Lane reckons, as they try to manage their position as best they can. “As we get closer I think they’ll have to do something,” he says.

Getting in early will have its benefits, Lane believes.

“If you do it early you’ve got the ability to pull levers, change your terms and conditions,” he explains. “But at the end you can’t, you’ve just got to sell it and your flexibility drops away.”


3 comments on “Departing riskies face halved valuations by delaying book sales”
  1. Avatar
    Shaun Clements

    In my opinion valuations should currently be lower than 1 years revenue. This trend should have them selling at cents on the dollar.
    Though largely unnoticed with all the noise we have now, the October guidance issued by FASEA around Risk commissions essentially requires an opt in from each and every client. The traditional model of purchasing a book and offering a review is no longer valid under this madness. If clients do not respond, revenue must be switched off.
    Ask yourself this. If you wrote to all your clients today, told them what your ongoing commission was and asked if it was ok to keep receiving this, how many would reply to say yes please. If you got 50% you would have an amazing client base.
    We need clarity on this now, not in January. Clients won’t insure themselves regardless of the best intent of legislation.

  2. Avatar
    Jeremy Wright

    What is good for all Australia, is a message that just does NOT get through.
    Many of the risk advisers who will leave at the end of this year, will be forced out of their Businesses by a flawed exam that has no bearing on the great work they do.

    Most risk advisers will probably sit the exam and then exit the Industry 4 years later, though they will not build up their risk books, as the current Regulatory regime makes it too hard to work in this area.

    Most holistic Advisers have stopped writing risk New Business, which will continue. There will be a trickle of new advisers, with a flood of exiting advisers and the end result will be a decimated Retail Life Insurance Industry, that unless the Life Insurance Framework is overhauled, sooner rather than later, will cause a collapse.
    For every seller, there will need to be a willing buyer and a future to look forward to.

  3. Avatar
    Christoph Schnelle

    I am quite surprised that so few risk books are up for sale at the moment. In some ways it makes sense, though. If you know that you will stop by the end of the year, you can stop prospecting, reduce your expenses and your tax rate will be lower because you will only make 6 months’ worth of income; and you will collect a further 9.5 months’ worth of income between now and January 1st.

    It would make sense, though, to have a sales arrangement in place that activates on January 1st and can be cancelled if the adviser passes the exam or the exam deadline gets pushed back. That is what I am doing as a buyer.

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