Advisers overvaluing practice values - ifa

Financial planning practices are overvaluing their businesses by pricing them on emotion or prices received in past years, says Connect Financial Service Brokers chief executive Paul Tynan.

The financial services business broker said advisers, like any vendor selling a prized asset, tend to see value through their own eyes and in doing so “are creating a major issue for themselves”.

“It’s natural for sellers to overvalue their business,” said Mr Tynan.

“It’s been their life, blood, sweat and tears and now selling that lifetime of work is an emotional undertaking – but ultimately it is the current market that determines price,” he said.

Mr Tynan said the most important aspect he discusses with vendors is the reality of the market and the "forces at play that will determine the source of prospective buyers and sale price”.

He said vendors also need to understand that valuation methods are changing.

“The majority of small financial planning books and businesses where the revenue is less than $1 million are still being sold on a recurring income multiple and larger businesses are based on a profit valuation method,” he said. 

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