Demand for mortgage books spikes

Financial services firms are paying as much as two times the value of the trailing commission for mortgage books, according to a financial planning practice broker.

The clarification of the grandfathering regulations by the Coalition has resulted in an increased number of financial planning practices and client registers being offered for sale, said Radar Results principal John Birt.

Mr Birt listed nine new practices for sale in February, “virtually ending the drought that started in July 2013”.

“In addition to an influx of new sellers of financial planning practices, we have seen higher demand than usual for mortgage books, forcing prices up,” he said.

Radar Results recently acted for a mortgage book seller that was offered two times trail, said Mr Birt.

“Irrespective of where your mortgage book is located ... buyers are paying cash 1.5 times to 1.8 times trail, no questions asked. And it doesn't matter who is the aggregator,” he said.

Accounting practices are also in high demand, said Mr Birt, with sellers in Sydney and Melbourne with between $500,000 and $1 million receiving the most attention.

“Corporate superannuation has made a recovery. After multiples had dropped to as low as zero, demand has now picked up, and so have prices,” he said.
The price obtained for corporate super books depends on the fund manager that is providing the administration services – as well as the licensee of the buyer, said Mr Birt.

“Some licensees are paying their advisers, who are qualified corporate superannuation fund specialists, a flat annual fee per member to continue servicing the plan, even though the commission has been switched off,” he said.

“In some cases, the flat fee is higher than the commission that was being paid originally. Hence, multiples have moved up to 1.5 times to 2.0 times [revenue].

Depending on the licensee, a 'buyer of last resort' can be offered up to three times the revenue,” said Mr Birt.

 

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