Introducing a clawback period of three years will leave many risk practice owners uncertain about the value of their business, argues one business consultant.
Speaking to Risk Adviser, Connect Financial Service Brokers chief executive Paul Tynan said the proposed three-year responsibility period will mean a lack of transparency about the value of a risk practice and lead to difficulties when selling it.
“[An adviser] could legitimately sell a policy to a client and for any number of reasons the client doesn’t renew their policy – that means there is going to be clawback,” Mr Tynan said.
Since there will be no guaranteed income for that period of time, no one will be able to properly estimate what the business is worth, he said.
Therefore, the way in which risk practices are bought and sold will inevitably have to change.
The days of paying a lump sum for the value of a risk business will end and with clawbacks of three years, transactions will more likely have to be completed in instalments.
“No one is going to be paying you something upfront like now on a three times multiple [for a risk book]. No one is going to be doing that,” Mr Tynan said.
“What you are going to have to do is pay it over stages over three years.
“[It] will make it hard to attract new people to sell risk [books] and make it hard to build value and see a transparent value in the business. [As a result] a lot of people will say it is just too hard,” he said.