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1% of AUM

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Apr 27, 2014 9:45 pm

mc0331

Joined: 2014-04-27Offline

Hello everyone, 

I'm one and a half years into my career.  I have the opportunity to purchase a book of business.  I realize this is vague, but is 1% of AUM a good purchase price?  20% of the book is fee based.  If not, what information should I be looking at?

Thank you all.  

May 29, 2014 5:22 am

Mike Langford

Joined: 2014-05-21Offline

Hi MC0331,

A great resource for pricing a book of business is https://www.fptransitions.com/

They actually posted an infographic, and a report on 2013 transaction data that will be very helpful: https://www.fptransitions.com/news/infographic_2013_ma_data

The most important thing to consider when buying a book of business, in terms of pricing, is recurring revenue and the strength of client relationships. You are buying relationships not assets.

What you are hoping is to buy strong client relationships with solid recurring revenue that you can grow.

Typical deal structure is to price on a multiple of recurring revenue. Then the buyer pays a certain percentage of that price up front with a the rest of the payments being paid over 3 or 4 years at a specified earn out rate based on retained clients.

With the above structure you don’t end up paying for client relationships that bolt after the sale and the seller has a vested interest in making sure your new clients are happy with you.

I hope this is helpful. Please feel free to reach out to me directly or visit finservMarketing.com if you need help growing your new practice.

Best,

Mike