M&A consultants to the financial planning industry have warned that planners might notice clients and revenue disappearing from their books.
At the moment, C and D grade clients can represent 10-15% of an adviser’s revenue – sometimes even 20%, according to Radar Results director John Birt. Many advisers are selling them off to get ready for FoFA, he says, and they are being readily snapped up.
“You get people who are entering the planning industry who need somewhere to start and whilst they’re not ideal, they are certainly good enough to start off at the ground level. You might get employees leaving a bank or employees leaving a large financial planning firm and saying ‘I want to be self-employed I want to start somewhere, where can I pick up 500 clients just to start off somewhere?’ And they’re cheapish as a rule, so I think there’s a pretty big demand for them.”
But he says this demand is going to be dropping, as the Government begins their drive move lost super balances to the ATO. Within two months, any account balances below $2000 will be moved, and next year this is set to go up to $3000. Birt says it will continue to increase and more revenue will be taken out of the hands of advisers.
“At one point, the adviser’s going to wake up and find out that revenue’s not there…The adviser’s going to notice that a number of clients are missing from their commission schedule in the next month.”
Advisers trying to set up their own business will then have to purchase high-quality B and A clients from someone who wants to leave the industry, is retiring, or wants to halve their business.
The market is already beginning to dry up. Sales in Sydney and Perth have dropped noticeably, while South Australia and Melbourne are only slightly lower. But Queensland is experiencing an overflow of sellers. Birt says he’s unsure why, but says there have been so many transactions in the past year in Sydney, that there isn’t much left to buy.
“Some of the institutions are buying up client registers pretty quickly as well…The institutions over the last two years have really added to that drought.”
As a result, prices in Sydney and Perth are more expensive than they were 12 months ago. Birt says higher prices are being asked, and higher prices are being paid.