The Money Portal has launched a practice buyout system that values businesses by as much as six times annual earnings but penalises advisers for any perceived churning.
The system, unveiled at the Sage conference in Alicante this week, will apply across TMP’s businesses and forms part of its response to the RDR.
The What If? system rates firms on four main criteria – quality of advice and data, compliance record, amount of trail commission taken and uptake of Entelechy, its initiative to move advisers away from up-front commission. This is combined with its new product matrix, which provides a qualitative overlay. This provides a total buyout figure which depends on the quality of business as well as size. TMP says this allows it to pay high sums because it will limit any liabilities.
Entelechy excludes products with high up-front commission while the What If? system penalises switches from, for example, one onshore bond to another onshore bond if it cannot be justified. The system also rewards advisers with a greater proportion of trail-based commission and fees.
Group director of strategy and distribution Alan Easter says it is a fixed, transparent and objective calculation of potential practice valuations which means advisers see a direct correlation between the quality of their advice and price tag if they decide to sell it on.
Easter says: “This takes all subjectivity out of the equation, plus it is risk-free so there is no need for run-off because TMP takes the liability. We know generally practice buyouts are based on quantitative figures. This means we can reward accordingly based on qualitative performance as well.”
TMP says an adviser writing £2m of investment business annually could develop a practice worth £308,692 to over £1.4m – potentially 6.25 times annual earnings. Firms must have been with TMP for at least three years to qualify.