Australia's financial advice industry has undergone a dramatic contraction. From a peak of around 28,000 registered financial advisers in 2018, the industry had fewer than 16,000 by 2024 - a loss of more than 40% of the adviser population in just six years. The causes are well documented: the aftermath of the Hayne Royal Commission, rising professional standards requirements under FASEA (now the Financial Adviser Standards and Ethics Authority), the cost and complexity of compliance, and a remuneration model that no longer supports the economics of lower-value client relationships.

For principal advisers who built practices over decades and are now thinking about what comes next, this environment creates both urgency and complexity. The pool of buyers is smaller. The buyers who do exist are more selective. And the practices that command premium valuations are increasingly distinguishable from those that do not.

Why Succession Planning Starts Earlier Than You Think

Most principal advisers significantly underestimate how long a successful succession process takes. A transition executed well - one that preserves client relationships, maintains service quality, and realises fair value for the practice - typically takes three to five years from the point at which succession becomes a serious consideration.

This timeline reflects the reality of what needs to happen. Clients need time to develop trust in incoming advisers before the principal steps back. The practice needs to demonstrate that revenue is not dependent on a single individual. Buyers or successors need time to conduct due diligence, arrange financing, and integrate the practice into their existing operations.

Advisers who begin thinking seriously about succession at 60 with a view to exiting at 65 are already behind. Those who start at 55 - or even 50, particularly if they want a genuine choice of successor and favourable terms - are in a far stronger position.

What Buyers Are Looking For

Understanding what makes a practice attractive to buyers or internal successors is the foundation of any succession strategy. The market has shifted considerably. Buyers today - whether aggregator groups, institutional licensees, or individual advisers looking to acquire a book - are more sophisticated and more selective than they were a decade ago.

The key attributes that drive premium valuations in 2024 and beyond:

Revenue quality. Recurring, fee-for-service revenue that is contractually committed (via signed ongoing fee arrangements) and not dependent on product commissions is worth significantly more than grandfathered trail commissions or ad hoc transactional revenue. Buyers apply higher multiples to clean, transparent, recurring revenue because it is more predictable and more defensible.

Client demographics and retention. A book with younger clients is more valuable than one concentrated in retirees drawing down. High client retention rates - measured and documented over multiple years - signal that clients are genuinely loyal to the practice, not just to the individual adviser.

Operational independence. A practice where systems, processes, and client relationships are institutionalised - not stored in the principal adviser's head - is far more transferable. If the practice would struggle to function for a month without the principal, that is a serious valuation risk.

Compliance hygiene. Clean AFSL audit history, current file notes, up-to-date SOAs, and an FDS register that is maintained and accurate. Buyers are acutely aware of the liability that comes with acquiring a practice that has compliance gaps; they discount aggressively for this risk.

Growth trajectory. A practice that is growing - adding clients, increasing revenue per client, or expanding into new service lines - is worth more than a static or declining one, regardless of current profitability.

The Role of the Investment Model in Succession Readiness

One of the less obvious factors that affects succession attractiveness is the investment model the practice uses. Practices that manage client portfolios entirely in-house - using bespoke direct equity or fund selections for individual clients - can be surprisingly difficult to transfer.

The challenge is that the investment rationale, the manager relationships, and the ongoing monitoring all live with the principal adviser. A successor inherits not just a client book but an ongoing investment management obligation they may not have the expertise or time to sustain. For buyers looking at multiple acquisition targets, this adds complexity and risk.

Practices using managed account structures are, in many respects, more succession-ready. The investment management function is institutionalised within the managed account mandate - it does not leave when the adviser does. Client portfolios continue to be managed according to the agreed strategy without requiring the departing adviser's ongoing involvement. The incoming adviser inherits client relationships, not a bespoke investment management obligation.

This is an important consideration for principal advisers who are still five to ten years from retirement. Transitioning to a managed account structure well ahead of a planned sale can materially improve practice transferability and, consequently, valuation outcomes.

Internal Succession vs. External Sale

Principal advisers typically face a choice between two broad succession pathways: identifying and developing an internal successor, or selling to an external buyer. Each has advantages and genuine challenges.

Internal succession - grooming an existing employee or junior adviser to buy the practice over time - tends to produce better client retention outcomes. The successor is already known to clients, aligned to the firm's culture, and invested in maintaining service quality. It also avoids the competitive pressure and public exposure of a market sale process.

The challenges are financing (a junior adviser rarely has the capital to buy out a principal without vendor financing or a phased transition arrangement) and time (developing an adviser to the point where they can genuinely lead the practice takes years of deliberate investment). Internal succession requires the principal to commit to a structured development plan for the successor, which many principals resist doing early enough.

External sale - approaching the market or working with a broker to find a third-party buyer - can deliver a cleaner exit and, in a competitive process, a higher price. It is also more predictable in timeline and process.

The risks are client disruption (clients who did not choose the new adviser and may not feel the same loyalty to an external entity), cultural misalignment, and the complexity of post-acquisition integration. The track record of major institutional aggregators in retaining acquired client books is mixed, and this is factored into the multiples they offer.

A hybrid approach - partial sale of equity to an external party while retaining a minority stake and remaining involved in the practice for a transition period - can combine some of the financial upside of an external sale with the continuity benefits of a longer transition.

Building a Buyer-Ready Practice

Regardless of whether the succession path is internal or external, the preparatory work is largely the same. A buyer-ready practice is one that has:

  • Documented processes for every major practice function - client onboarding, annual review delivery, compliance, fee billing, and complaint handling.
  • A maintained CRM with complete, current client records including dates of last contact, outstanding actions, and service tier.
  • Segregated client relationships - where possible, clients who know and have dealt with more than one adviser in the practice, reducing concentration risk on the principal.
  • Clean financials - revenue attributed to client relationships rather than the principal personally, with expenses clearly separated from personal costs.
  • Up-to-date legal and compliance documentation - current AFSL authorisation, professional indemnity insurance, complaints register, and adviser register.

Starting this work three to five years before a planned exit is not premature. It is what allows you to approach the market from a position of strength.

The Conversation Worth Having Now

The most common regret among advisers who have navigated succession is starting too late. The second most common is not having the conversation early enough with potential successors, family members, or business partners about what an exit actually looks like.

If you are a principal adviser with a client book you have spent years building, the question of what happens to that book when you step back is worth answering now - while you have the time to shape the answer, rather than in a hurry when circumstances force the decision.

We work closely with advice practices on the operational and investment model decisions that affect succession readiness. If you would like to understand how your current structure - including your investment model - affects your practice's attractiveness to buyers, we are happy to have that conversation.