What multiple will financial advice businesses sell at five years from now, and could implementing managed accounts boost their acquisition value?
That's a question that Managed Accounts Holdings head of distribution and marketing Tony Nejasmic sparked at an adviser panel at the Financial Standard Best Practice Forum on Managed Accounts in Melbourne this morning.
"We think advice businesses will sell at a multiple of 0.75 times the revenue in five years, down from the two or 2.5 that they are selling for currently," Association of Independently Owned Financial Professionals (AIOFP) chair Adrian Raftery said - a former financial planner and who works at Deakin University's Business School as a director of professional and executive execution.
Raftery expects one-third of advisers will leave the industry in the next five years, creating an oversupply of businesses that are up for acquisition. This will drive down the prices.
The 0.75 multiple number is his "guesstimate", based on tax returns he has seen.
Another speaker on the panel, The Wealth Partnership director Tony Rumble, contested Raftery's claim.
"If practices are worth 0.75 times in 2023, there will be blood on the streets," Rumble said. "I was talking to a lawyer who said 0.5 but I think it is going to be one or more like two times."
The panel agreed implementing managing accounts could add value to a business (by adding business efficiencies) but did not quantify this value add.
"If the practice's revenue base grows in the next five years by specialising in an area or implementing something like managed accounts, even if the multiple remains 0.75, it's still three quarters of a bigger base," Raftery said.
More than $60 billion is held in managed accounts in Australia according to an Institute of Managed Account Professionals (IMAP) survey released yesterday. The sector grew 30% in the last year.