I spend much time as a road warrior participating in speaking engagements throughout the industry. When we reach my favorite part, Q&A, I have already anticipated the first question I will receive. The one question everyone in the room wants an answer for.

“What do wealth management practices sell for?” Or, “How do I know what my practice is worth?”

The truth is, even if you handed me your P&L and comp statements right there and then, you would likely end up with the same answer I always give, “It depends.” I can literally feel the disappointment rise from almost everyone in the room as their first thought is, “that is the only reason I attended this session!”

We have entered a new world in the M&A space. The old school belief of “one times commission revenue and two times fee-based” is simply not true. Frankly, it never was. Buyers are becoming more and more sophisticated and there are new entrants in the marketplace every day. This is good news for wealth management firms looking to sell. Competition is higher than ever and buyers are willing to pay a premium to win. But, this also adds a new level of complexity to your decision to sell. More sophisticated buyers mean more complex choices for you to make.

Fusion consults with advisors throughout their entire lifecycle. Our expertise and talent we have attracted allow us to intersect a financial advisor at any point in their business lifecycle. But, no matter where we intersect, we always frame every conversation around your enterprise value.

All decisions should be made with your end goal in mind.  Many factors contribute to enhancing the value of your business/practice, some important ones are:

  • Having a strong handle on key metrics on your business vis-a-vis your competition. Some important ones are:
    • Fees for services and discounts offered
    • Services that need to be unbundled vs bundled
    • Compensation margin
    • True EBITDA margins
  • Know your client.  Surprisingly, a number of advisors either have just a “gut feel” or simply do not have a good handle on basic facts related to their client base. Important ones to know are:
    • Client concentration (by revenue rather than AUM)
    • Geographic distribution
    • Age range (Are your clients young? Well past retirement age?)
    • Intergenerational relationships and depth of those relationships
    • Share of wallet
    • Money origin (e.g. business owners creating wealth? Or inherited wealth they live off?)
  • Net new asset flows i.e. flow excluding the effect of the market.
    • How much are existing clients adding to their accounts, net of assets sold to fund living expenses or other life events?
    • How much in terms of new assets are you bringing to the firm?
    • How many clients are taking their assets and why?
  • “NextGen” is also key:
    • Do you have strong bench strength? This is key for the longevity of the business and to ensure a strong multiple in the event of a sale.
    • Do you have an internal equity transition plan?
    • Do they want to be owners vs just employees?
  • Are you investing in the business?
    • How do you market your services?
    • Do you have strong relationships with Centers of Influence and other referral sources?
    • Have you upgraded your technology platform to remain up to par? The more automatization, the more leverage you have to do other things with your valuable time.
  • Is there a “niche” you cater to?
    • Does your practice have an “angle”?
      • E.g. a firm in NY that I know is run by a woman who caters to divorced/widowed women.
      • Another one represented on a sale caters to young Wall Street executives making significant wealth.

Earlier this evening, I was watching Shark Tank with my family. This particular episode was one of the highest offers ever made to a contestant. Within 10 minutes, three very different offers were thrown out. All in the millions. This small business owner had 2 minutes to decide which one to take! One was giving up all control of the company he built, but for an offer that was 10 times the capital infusion, he was seeking. The other was giving up a large portion of equity in exchange for cash flows. And, the final was a combination of both, but a much smaller capital infusion in exchange for control.

As I watched this owner make a decision – likely one of the most important decisions in his life – in under a few minutes, one of my favorites expressions came to mind:

An unrepresented seller in the marketplace is a buyer’s dream.

Be careful. Seek guidance and representation. There are sharks out there.




Michael Papedis, CEO