How to get the best value for your book
Mortgage advisers planning to quit the business when full licensing becomes mandatory under the FAP regime are being advised to check their loan books carefully if they want to get good proceeds from a sale.
Friday, November 18th 2022, 6:00AM 
4 Comments
by Eric Frykberg
Rupert Gough, who recently sold his Mortgage Lab to the Maurice Trapp Group has bought several loan books in the course of his career and says the value can vary a lot, and they can even be worth nothing.
Another adviser, Bruce Patten, warns it is a big mistake to be “blase” about succession planning.
He said people should take great care with succession planning if they want to maximise the value of their business when they retire or switch to another line of work.
Gough agreed, saying it was vital for departing advisers to make sure their loan book was property organised and easily accessible to a potential buyer.
They also had to make sure their loan book data was clear and was organised in a manner that was easily transferable to other Customer Relationship Management (CRM) systems.
“If I buy a trail book and it is all in manila folders in someone's garage, that is essentially worthless to me,” Gough said.
“I need to be able to see previous correspondence with a client, so I can see if there are any problems or maintenance that has to be done.”
The issues raised by Gough and Patten are relevant because many people look set to leave the industry when full licensing is required under the FAP regime.
It is not clear how big this number of departing advisers will be, but many people have complained loudly that the FAP process is too onerous and the latest official figures showed that 14% had not yet even started getting a full licence.
That would indicate several businesses and or loan books would go on the market in coming months.
It is not possible to say how much they would be worth on average because mortgage businesses vary too much in size and quality.
Another variation is whether they are being sold as a fully operating business, or whether just the client loan books are up for sale.
One man who knows a bit about this is Russell Hutchinson of the business brokerage Quotemonster.
Although he is more focused on insurance, he has helped 36 mortgage advisers get out of the business in the past two and a half years, by buying their loan books.
He says typically, they are worth between 1.5 and 2.5 times their revenue.
Gough agrees that a multiple of two is the average.
This is far less than for the sale of insurance books, which can get more than four times earnings.
“The market feeling is that the mortgage advice relationship is perhaps a bit more transactional, and that the client is more likely to switch between providers of mortgage advice,” Hutchinson said.
“There is a lot of competition for the client's money. Banks are trying to get the client to come directly to them, instead of using a mortgage adviser. These clients are getting a lot of offers (from people wanting to lend them money)”.
This meant the risk of leakage from a mortgage advisers' portfolio could easily pull down its value, making it even more important to maximise the exit price an adviser receives at the end of a career.
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Comments from our readers
Good books are still selling at 3x
2. What these so called industry leaders (if that is what they really are) and the aggregators should have been focussing their energies on, not just now but for the last ten years or more (and they have not been). They should be is sitting down with the: (i) newer advisers (ii) the 10 years +++ advisers (iii) and the well past 20 year advisers and be talking to them about business succession planning.
3. Yip how to build an NAV (net asset value)- how to build a saleable business. A mortgage and or insurance business valuing same is a very technical exercise and it is NOT just a multiplier like what Rupert Gough is throwing out there- suggesting- that is one part of many parts.
4. Cynical I know but odds on- he and his buddy Maurice Trapp are probably talking a multiplier of 1.5 to 2 times for mortgage businesses because they are operating in buy mode- acquire mode- yes- no???
5. I have fielded at least 3- 4 phone calls over the last four years from CPA qualified and respected Accountants both inside and outside of "the Bay" and they too have trouble valuing mortgage and or insurance businesses.
6. Question- is the only value the renewal income- the trail- the business's pretty coloured branding- website- I think not!!!
7. Rupert Gough and others why not set up a working group (but not just your own white labelled advisers) and give back to industry and help with this issue- with this problem- with this massive opportunity.
8. Fact- it is not only the new FAP's regulations that is driving “mature” and no so mature advisers out of the industry. Most of the seasoned campaigners +++ 20 years forgotten more about mortgages & insurances than what StrategI MBA adult educators teach and yes just in case you are wondering. I am qualified NZCFS- CORE, Residential Lending +++ Life- Health- which by the way should have been a level 5- 6 a diploma so that it has some teeth- credibility.
9. I am already working through legally binding succession planning stuff with my Team- my accountant- my layers and others- food for thought Rupert Gough and others who like to spout....................................
10. Some of us non- empty barrels know a few things too you know. Here is some advice- pick up the phone and talk to John Erkkila, Neil Richardson and or Phil Harris- both self- made millionaires both since left NZHL.
11. The industry and the empty barrels out there try and find a better more regimented business succession- NAV building business model than what NZHL uses. If you can I will shout you all a fizzy soda and or a coke- merry Xmas!!!
12. And on an aside- what do the BIG boy banks do to help their accredited advisers build value in their business’s- answer- ZERO!!!
13. They are great at driving a wedge between the client- the adviser- the bank (exception Sovereign Home Loans) and the wedge is sharp and it often forgets where the business originated - is sourced from on or around the 25th month of the loan cycle when the loan leaves and the "thank you for coming" pressie for the adviser is normally a "claw back" and normally (9.9 times out of 10) the departure WAS NOT caused by the adviser- hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
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Even if your dealer group contract confirms that you as the adviser owns the client data some dealer groups will still not give you that data and essentially claim it for themselves, I know of an adviser who was with the same group Mr Pattern has shares in and this group basically said “’ we don’t have time to provide the client data to you until sometime next year”, 3 months later these clients were getting marketed too by the groups branded advisers, nice one.