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.
