Speaking at the 2013 Financial Planning Association Congress in Sydney yesterday, Mr Neill noted that the value of financial planning practices has declined by around 25 per cent with the onset of the Future of Financial Advice (FOFA) regime.
“We don't see businesses getting back to those values in the pre-FOFA environment,” he said.
Generally speaking, a ‘pure’ financial planning business (once corporate super and risk assets are excluded) is currently worth close to 2.5 to 2.75 times recurring revenue, he said.
On an earnings before interest and tax (EBIT) basis, quality financial planning businesses are currently selling for between five and five and a half times, said Mr Neill.
But while valuations tended to be within a reasonably narrow band before FOFA, they are now diverging based on the quality of the business, he said.
“We've seen that gap steadily widen. The range now businesses are being valued at is as wide as we've seen it in the last 15 years,” said Mr Neill.
The current trend in valuations is “downwards and diversifying”, he said.
“You may not have too much capacity to determine where the trend line is headed, but you do have a lot of control of where you sit in those ranges,” said Mr Neill.
Accounting practices are trading for around three and a half to four times EBIT, he said – although valuations in this space are starting to “polarise” too.
Highly compliance-based accounting practices that have little capacity to grow are likely to fall back in terms of value, said Mr Neill.
But values in the accounting industry are likely to be underpinned because “there's lots of enthusiasm to acquire into that space”, he said.
