Succession planning experts say looking inward first leads to 50% uplift in key financials


Wealth valuation specialists launch Peloton Partners; aim to help wealth advisers optimise businesses value

Peloton Partners launched to add value in succession planning.

Peloton Partners launched to add value in succession planning.

Three  experienced financial industry advisers have launched a new specialist consultancy group aimed at helping wealth management advisers extract full value from their businesses.

Peloton Partners has been established by its three key principals, Rob Jones, Michael Harrison, and David Murray, who between them have more than five decades of direct experience working with institutions at various levels as well as financial planning and accounting businesses both large and small.

“Currently, many wealth management firms are not extracting the maximum value from their businesses mainly due to the inefficiencies of the existing model,” said Mr Jones. “Additionally, many feel disappointed when selling or merging their businesses because they do not feel the true value of their business has been reflected in the sale price.”

“We work with our clients to ensure they have the right game plan and effective tools for change to maximise their value and performance as part of either a long-term growth plan or in readiness for the potential merger or sale of their business.”

Peloton Partners uses a proprietary tool,  ifocusTM , to review the current state of each individual wealth management business and identify what needs to be done to unlock specific opportunities for expansion or create competitive buyer tension.

“We have been through the succession and sales process many times ourselves and appreciate the effort, risk, emotion and cost involved,” said Mr Harrison. “Using our extensive experience, we help clients achieve outstanding results by ensuring they fully understand their business and therefore, its true value.

“This process gives our clients the choice of selling their businesses on their terms and conditions or continuing on with a revamped, more efficient and valuable business model.”

Since Peloton Partners was launched, it has reviewed and advised wealth management businesses with a combined total of $1.42 billion of Funds Under Management, an average tenure of 13 years, total revenues of $16.87 million, and close to 6,000 clients.

Some of the key issues identified by Peloton Partners include;

  • Normalised profits needing to be 20% higher in order for the business to be sustainable;
  • Annualised revenue growth needing to be at least three times greater;
  • Inefficient use of IT platforms to give clients secure, reliable access to markets;
  • Majority of the debt relating to over-priced book acquisitions which have not been properly integrated;
  • Revenue being reasonably well diversified but was not strategically targeted; and
  • Average advice fees being 0.6% which is materially lower than the target benchmark of around 1% of funds managed or equivalent fixed fee
  • Segmentation of clients based on total fees charged rather than profit derived.

According to Peloton Partners, the total ‘un-extracted’ or ‘latent’ bottom line value assessed within these businesses was $2.7 million in EBIT uplift, which equates to nearly 50% of the total aggregated EBIT these firms are currently producing.

“Our estimate was that the changes we recommended would take between six and 36 months to implement,” said Mr Murray. “Given the average business tenure of these clients is 13 years, ranging from a start-up through to 25 years in business, this is a relatively short period of time to substantially improve the bottom line and overall business.”

“The impact of ongoing increased cash earnings and capital value is significant and dwarfs the cost of implementing our recommended measures,” said Mr Jones. “We are confident the individual firms can achieve on average at least 80% plus of the value uplift ascribed to them after specific risk factors have been applied to the firm.”

The key message from Peloton Partners is that wealth management firms need to look inward before looking outward.

“Resetting of their existing business model and fully extracting value from it should be their only priority before embarking on new business opportunities,” said Mr Harrison. “The end result will be wealth management businesses that are ideally positioned to deliver tomorrow’s services at the right price to the right clients while also adapting to changing industry and market conditions where necessary.”

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