How much does your advice book need to be worth before you sell?

To fetch top dollar when selling your advisory business, how much should your financial planning book be worth? 

It’s a question that Connect Financial Service Brokers CEO Paul Tynan, an expert in financial planning succession and valuation, fields on a weekly basis.

“Whether you own a flower shop, a vineyard or a financial planning firm, you all have the same problem, which is – how are you going to retire?”  

Financial advisers who have one eye on retirement are increasingly delaying their exit from the industry, with many people “putting off retirement because markets have come down, and people are saying ‘I’ve got to work a few more years’,” Tynan says.

“Everyone in that timezone of retirement is in the same boat. They’re all putting their thinking caps on because the world has changed since Covid, and everyone is thinking about retirement.”

Whether you’re planning a swift exit soon or retirement is a number of years away, there’s a question you probably want a definitive answer to…

How much should your book be worth before selling?

Frustratingly – it depends, says Tynan.

The industry standard for financial advisers is generally somewhere between 1.5 and 3 times the gross annual revenue, although last year, industry experts reported that some quality books of high net worth financial planning clients were selling for up to 7 times earnings.

Yet, according to Tynan, “this is not the right question to ask any more”.

“Succession is getting harder each year because following the Hayne Royal Commission, it’s becoming very difficult for people to get into the industry. With the barriers to entry… so high, we can’t replace the baby boomers who are retiring,” he says.

Furthermore, the days of financial planners cashing out by going to the big banks and institutions to buy them out are less viable than they were in the past. 

“We’ve still got this dealership structure in place and that’s not good for succession, because as soon as you say you want to retire, they’ll say ‘don’t retire –we’ll find a buyer within the dealer network’. The dealer wants to retain the clients. But that might not be the best thing for the buyer, for the clients or for the person wanting to retire.”

He suggests that stepping outside of this structure – provided you don’t have a buy of last resort clause – could be more fruitful. 

Focusing on an arbitrary number is also not as important as focusing on the outcome you want, Tynan says.

For instance: are you hoping to sell to other financial advisers? Do you see your company merge with another business or be absorbed as part of a larger financial firm? Are you looking at private equity groups? Or would you like to sell within your current dealer network? 

Or if you have a team, are you keen to develop a succession plan that incorporates your current staff, to ensure a smooth transition of client relationships and operational responsibilities?

Getting from A to B when selling your business

Once you know your ideal roadmap out, identifying potential buyers may not be as difficult as you first thought. 

“Here’s the thing – financial planning is a great job because you’re helping people and it’s great money, so you have a really good lifestyle… There are always more buyers… than sellers,” he says.

“But you’ve got to have a strategy. Financial planners have a network through their dealer group and through BDMs, which you use to create a way out.” 

For example, just before Christmas 2022, Tynan knows of an adviser in Ballarat who was interested in buying a financial planning practice. After approaching 6 established businesses, 5 of them were open to selling. 

These businesses were not listed for sale, but they were open to selling, proving Tynan’s point that there’s “always a buyer in the marketplace”. 

He suggests picking up the phone, as you never know where a conversation will lead you. 

“Email is so easy, but when you pick up the phone and talk, a conversation can take place.”