Accounting firms that refused to succumb to the allure of financial planning have never looked better.
Nothing reinforces the value of a good accountant quite like a federal budget. Morrison’s announcement last week contained no less than 33 tax changes ranging from personal income tax reductions, to instant asset write offs for small business, and tweaks to self managed superannuation funds.
Try wading through that quagmire without the aid of a sensible accountant and your sanity intact. Not likely.
On a leaderboard of who gets most excited about budget announcements, accountants occupy the third rung, surpassed by only politicians and economists.
The week prior to federal budget, however, it was financial planners getting amped up about banking royal commission revelations. When tales of financial planners behaving badly started dominating the headlines, transactions must have froze. The saga seemed to once again reinforce the view that trust is better bestowed on accountants than financial planners.
In the short time since, this perception has come to form the crux of the uninterrupted ascendency of accounting practices, which continue to attract record prices, while financial planning practice valuations waiver.
I honestly thought M&A activity would choke in the wake of the royal commission. Cashed up foreign entities aggressively scouring the market for deals would shelve their plans, at least in the short term. And since it has largely been part due to their insatiable appetites driving accounting firm prices to record highs, surely the peak had been reached and down was the only way for valuations.
Well, apparently not. Instead, a steady number of inquiries have come from buyers seeking opportunity in adversity. These opportunists are gearing up for a new wave of consolidation resulting from the royal commission. And not all of them are bargain hunters.
Financial planners are in pain. Everyone hoped that the Future of Financial Advice (FOFA) laws would stop the rot. It didn’t. FOFA compliance created a lot of work for the best financial planners; the worst just skirted around it.
So, the royal commission is a necessary clean up.
The best financial planning practices saw this shake-up coming years ago. They are ahead of the curve. They’ve worked hard to do everything the law demands and provide an excellent service.
All financial planners will suffer in the fallout of the royal commission – the whole financial planning brand is on the nose. Valuations are in question. The banks are offloading their financial planning arms at massive discounts.
Accounting practices, meanwhile, are still on the ascendancy. They remain the trusted advisors to their clients.
But the window of opportunity won’t last forever. Now financial planners are looking for that ‘clean slate alignment’ – they want to partner with accounting firms, which have stayed clear of rogue financial planners. Right now, people are looking at good businesses and saying, ‘Right, let’s do the due diligence’ and Vendors are saying, ‘Right, let’s do our reverse due diligence’.
This will result in some sizeable deals. The financial planning sector will recover. It always does. But many planners in their forties and fifties don’t want to white-knuckle it until the sector recovers. They’re nervous about what they could lose, the cash flow drying up while they bear the brunt of increased compliance. They either can’t take the short-term hit or simply don’t have the stomach for it. Hanging around waiting for the clawback isn’t an option.
A lot of practitioners that barely survived the introduction of FOFA. They are suffering change fatigue and will up stumps rather than go through another round of regulatory screw-tightening akin to the tenth level of hell.
In reality, though, people still need financial advice.
Good financial planners are looking for that alignment. They are sound businesses, and they are ready to buy.
Now is the time for accounting firms to embark on some reverse due diligence. Ask yourself: ‘Am I ready to sell? Do I have clients not being serviced properly on the financial planning side? What is the strategy for proactively dealing with clients broader financial needs now and into the future? When we talk about improved client service, what do we have to offer? Is the culture of my organisation primed and ready for expansion?
Of course, the old rules still apply in the new situation: the deals that make everyone money and are best for clients are all about cultural alignment. Clients will be sensitive, and rightly so. Get to know the other side, and not just over a beer. Bring in an external party who has no emotional attachment to the deal and make sure you know the business before you make a move.
Remember, review, plan, ask everyone (inconfidence) of their experience, review again, then execute. Knee-jerk reactions can be costly.
Be careful, but don’t wait. Despite all the royal commission fallout, there has never been as much activity in our industry – the consolidation / alignment continues.
Magnus Yoshikawa | Jadeja Partners.