Advisor Intelligence

What Really Matters When Valuing Your Business

Advisors continually struggle in valuing their practice, with many placing too high a price on their practice.  At the FSI Advisor Summit on Tuesday, Owen Dahl, president of The Dahl Consulting Group, said an advisor’s client makeup is a major factor when determining the value of an advisors’ business. It’s a little more complicated than just about two times the annual revenue.

“As much as you love your practice, if you try to sell your practice for five to seven times revenue, you will end up in litigation,” Dahl says. “That’s not a good succession plan.”

Client proximity is often overlooked, especially in the age of instant, digital communication. But advisors with a large percentage of their long distance clients could face some issues, even those clients who have been with the firm for 25 years and retired to Florida or Arizona.  

“When [an advisor] sells his practice, they’re going to go to the guy down the street in Palm Springs,” Dahl says. “There’s a natural preference for someone when the market goes down, he’s not making a long distance call, where he can walk into his office and sit down and have a cup of coffee.”

And it’s not just the client location that’s important, the advisor’s location is also something to consider. It’s generally agreement over that metro advisory firms sell easier, Dahl says, noting it’s a simple issue of supply and demand. “There are more buyers,” he says.   

Client makeup comes into play as well. For those advisor who service institutional clients, that could be another area to consider when looking to sell a business. With too many institutional clients, you see a risk to the cash flow, Dahl says. “They are more likely to be a five to seven year client,” he says. And when you sell your practice, the action will trigger a decision-making process that will open the door to the opportunity where the client could walk away.  

Dahl also noted the importance of having a succession program in place, it increases the stability and lowers the risk in the valuation process. “You need to have succession plan in place and you need to know where you’re going,” Dahl says. 

Please or Register to post comments.

What's Advisor Intelligence ?

The quick hits of information you need to make you a smarter wealth manager

Contributors

Diana Britton

Diana Britton is the Managing Editor of WealthManagement.com and REP. Magazine, covering asset management and independent broker/dealers from all angles. A native of Los Angeles, she now lives in...

Megan Leonhardt

Megan Leonhardt is the associate editor at WealthManagement.com, covering all of the wirehouse news, as well as regulatory affairs. A business journalist with a background in the legal industry,...
Blog Archive
Investment Category Sponsor Links

 

Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×