The RDR and it aftermath is having a huge effect on IFA valuations. For those seeking to value an IFA firm there are huge discrepancies out there between what one IFA firm has as a valuation versus another.

Valuing an IFA firm is not just a case of receiving a numerical amount, there are far more pitfalls and points to be aware of which affect the true price offered by an IFA valuation.

Being IFAs the sellers are aware of the concept of risk/ reward ratios when planning their clients investment portfolio and strategy. Basically the longer the payment period of your valuation and the less upfront payment then the higher the risk is to the selling IFA.

On the surface the best price can be obtained from a commission split arrangement with another IFA but this is a very high risk strategy for getting value out of an ifa book.

New RDR guidelines outline that although trail payments can be claimed if the IFA practice is sold before 2013 there are only specific circumstances where the trail can be left undisturbed,

Even if the clients investments need only a very small re-balancing or discussion then the new Independent Financial Adviser would need the client to sign a fee paying agreement rather than continuing to accept the trail.

Of course these new guidelines have thrown doubt on the majority of commission split type valuations available in the market place.

It must be remembered that in the first client meeting (or at least very early on) in the new IFA/ client relationship the acquiring adviser will have to change the charging structure. How happy will clients be to warm to a new IFA who makes them pay directly for their services for the first time.

Leaving the client trail commission undisturbed may well mean leaving the client alone and that will have a tremendous effect on client retention. This could well be compounded if some of the latest businesses designed to mop up trail commission (without paying selling IFAs) by getting clients to switch trails to their discounted service gain traction and full media coverage.

IFAs considering valuing their business in this way should consider that, even at an average 10% IFA client attrition rate and a 70% split on trail commission the retiring IFA will only get about 2.5 times multiple of recurring income in the first 5 years. 

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