Regulation fears for advice businesses' value

The Ministry of Business, Innovation and Employment is due to give its recommendations for the FAA to the Commerce Minister by the end of this month.

There are predictions that among the changes to be implemented are more obligations on advisers who are currently registered but not authorised. At the moment they do not have to have the same amount of paperwork as AFAs.

Nick Stewart, of advice firm Stewart Group, said an increase in paperwork and other regulatory requirements could potentially lead to a drop in business values for risk advisers. On average, risk businesses are usually valued at three-and-a-half to four times their annual income, compared to twice for investment advisers.

"Wealth management firms used to transact at higher multiples," Stewart said. "It could be partly due to regulation. It could be why there aren't so many risk books transacting at the moment. With regulation on the horizon if you are paying three-and-a-half to four times, if you have to prove you can service clients well you cannot make money paying that multiple so it could be going to change."