Myth Busting:
The IFA valuation fall

Story

It’s hardly surprising when you consider that the average age of an IFA is 58 that as many as one in three advisers are looking to sell their business within the next five years. Against the backdrop of RDR and the dramatic movement of the business landscape brought about by other legislative changes and the evolution of the Internet, everyone in the sector has been forced to reconsider their business models and after a lifetime devoted to building a business, it’s understandable that older advisers simply don’t have the appetite for the changes essential to the future of their business.

With 92% of advisers having no more than five advisers and as many as a third being sole traders, the general move in the sector towards consolidation makes sense. Being part of a bigger entity makes the necessary transformation far more straightforward for small businesses. That’s why the landscape represents rich pickings for larger firms with deep pockets and a model that meets the demands of the new marketplace.

While it may seem logical that the number of businesses on the market will force down valuations of adviser businesses, this is not the housing market. The laws of supply and demand don’t work in quite the same way. If you are considering a sale, I urge you to ignore all of this.  There is no legitimate concern for IFA valuations to fall for this reason.

When you are selling an IFA business you should instead focus on the facts that…

  • the prices advisory firms are currently selling for gives a sufficient arbitrage with shareholder value to continue at this level for some time to come.
  • the actual IFA business valuation is calculated specifically in relation to the nature and reach of the business, the staff, the backbook, the clients and so on, and that will not change no matter how many businesses are selling.
  • advisers are no fools, and they are not going to sell a business they have spent years building for less than it is worth, and neither should you.

My advice is, don’t let the fear of IFA valuations falling cause you to rush into a sale. Take your time, review the market and take the initiative. Approach companies that give you options to sell on your terms, whether or not you want to stay with the business.

Believe me, advisers still hold the cards when it comes to selling their firms and that won’t change however many businesses come up for sale.

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