Partners within St James's Place can use an internal piece of software called MyPractice to get a live valuation for their business.
A screenshot shared from MyPractice by another SJP adviser, seen by FT Adviser, indicates the valuation of a practice is given at around six times the annual fee income.
This chimes with the conversations FT Adviser has had with two other advisers who bought books of business from other SJP advisers.
All three current or former St James's Place advisers, who have been either buyers or sellers, told FT Adviser the expectation is that one pays six times the fee income plus 25 per cent of that number for goodwill.
FT Adviser has consulted with others who have undertaken merger and acquisition transactions of advice businesses that are not SJP practices in recent times. Their view is that a multiple of three of four times annual fee income is more typical in the market.
Buyers market
SJP advisers are now concerned they won’t get the six times fee income number shown on the screen, or the goodwill, but continue to have to service the debts they took on.
One St James's Place partner told FT Adviser that he believes he is now capable of getting only 80 per cent of the price on the screen, with no goodwill payment.
The partner said: “For most partners the exit value is the only thing that made being a partner worthwhile. Partners receive a valuation of their practice. {I believe} a practice valued at £100,000 used to be worth £125,000 but you would now be lucky to get £80,000.”
He said many partners fear they would be in negative equity if they sold at those valuation levels, as the level of their debt would exceed the value of the practice, at current interest rates.
FT Adviser understands St James's Place view is that because the loan to value ratio at which debt is taken on is so high, negative equity shouldn’t be an issue.
Under FCA rules, an adviser that owes money cannot work at a different firm until it is repaid.
david.thorpe@ft.com
