Growing Financial Advisor Business? Keep Valuation in Mind


Every advisor wants to grow their business, but as many will tell you, not all growth is good growth. Some increases in revenue come with unwanted challenges – demanding clients, bad fits, and other problems. In the big picture, another challenge emerges. Not all business growth actually increases the value of your book of business.

While you’re doing the work to increase your revenue, it pays to keep an eye on factors impacting valuation. If you know what matters when looking for buyers, you can build towards it now.

What Are Potential Buyers Looking for?

You know how you feel about your business, about your book of clients, about the hundreds of hours you’ve put in and the dollars you’ve earned. Both for yourself and your clients. But how will a buyer look at what you’ve built?

This is the critical question. Unfortunately, many advisors assume that they understand the factors a potential buyer looks for when selling their business. As you can imagine, few misconceptions can be as costly as ignoring the unspoken rule book created through buyer preferences.

Why does this matter to you now? The better you can maximize your brand’s value, the more command you have over your continuity planning. It’s not just a money question – it helps you transition your clients into the best hands possible.

The Consolidation Angle

The advisor industry landscape is still fairly fragmented, especially with the rise of breakaway firms. As advisors leave corporate brands for more independence, there are new names emerging as power players through the consolidation of AUM. In a recent study by Defoe & Company, the top common denominator of buyer motivation was AUM consolidation. 

The key here is that this isn’t just your total AUM. They need to know your AUM is easily transferred through strong client relationships, a trusted handoff, and compatibility of financial planning tools.

1 – Talent Acquisition

Next, who are the key players in your firm? Talent is a golden commodity for business leaders. Do you have trustworthy, reliable advisors under your guidance that have grown strong portfolios and acquired HNW clients? Having a handful of team members who will transfer well with the acquisition can increase the worth of your business exponentially.

2 – Geographic Expansion

Even with the rapid adoption of digital advisor relationships, geography still has strategic value to potential buyers. It’s not just about comfort zones for local clients, who may still prefer a local relationship. You likely still have a geographic concentration in your network of clients. They’re looking to expand their relational footprint collectively.

Does the location of your firm offer a buyer an opportunity to expand into a new region? A new market? Get a foothold in a previously untapped location?

3 – Extension of Operational Capacity

A key differentiator for acquisitions goes beyond critical mass and AUM – do you have an innovative practice that could introduce new efficiencies to another firm?

We’re not necessarily talking about a tech start-up model, where you’ve invented a groundbreaking tool. This can factor into any area of operations. This can be a phenomenal onboarding sequence and resources. This can be a fine-tuned tech stack that ties in the right tools in reliable ways. Is this a rare marketing funnel that consistently fills your calendars with new appointments?

If there’s a unique area in which you excel, you may find that you are more valuable to a potential buyer if they are able to acquire your unique operational strength.

4 – Client Retention by Design

One of the biggest factors to consider when it comes to wealth management acquisition is your client. They may have chosen you for a variety of reasons, but among them is the trust that you earned. The relationship is often the glue that keeps them with you through market volatility.

When it comes to continuity, the “stickiness” of your book of business is a critical piece of the valuation. Specifically, how can you demonstrate that you’ve prepared your client relationships to stay while swapping the brand on their partner?

Some of the same principles that help an internal transition go smoothly also apply to acquisitions. Factors like having a strong roster of continuing advisors help minimize relational turnover even in the midst of M&A’s. Another example is leveraging updated client-facing technology that will feature less drastic change when updating to a new company’s tech stack.

You want your client to feel like nothing has changed. And you want your buyer to feel like they are stepping right into a fully operational firm that simply needs a gentle hand of guidance.

How Far Ahead Should You Start Planning for Potential Succession?

As long as you are pursuing growth in your business, you are investing in what may be your most valuable asset. Don’t put off investing in the eventual value of your business! Here are a few clear categories that you can focus on to improve your potential valuation.

Commit to Reinforced Relationships

You can take more time to figure other systems out, but rock-solid relationships are the lifeblood of your business. Fine-tune your best practices around client experience and communication to solidify your relationships. When the time comes to transition, you’ll help buy yourself trust to bridge the transition.

Business Review

It’s additionally important to clarify high level questions about your business such as client metrics, multiple perspectives of revenue, and your business structure (chain of command, processes, etc.) Creating one of these now and consistently updating it is a great way to keep an eye on your progress.

Understanding M&A-friendly Accounting

If you pay attention to your clients’ finances but not your own books well enough, that’s step one. If you’ve done a consistent job keeping orderly books, the next step is to review them with an accountant who is familiar with M&A’s. It often takes some time to do the initial clean up, but by starting early, you are able to provide a potential buyer with a more extensive history of attractive finances.

Strong Cybersecurity 

It’s hard to imagine an advisor who doesn’t take sensitive client details seriously, but some advisors may not be aware of the standards a buyer expects. Be proactive to maintain best practices and protect your clients as well as the business you’re building.

Human Resources

In the world of small businesses, there are often details that are missed in terms of hiring, contracts, personal information, and more. It’s worth doing a review of your current employment contracts and policies so you can answer personnel questions confidently.

Operational Assets

This angle can wait until you are more prepared to pursue an acquisition. It’s important to understand what assets you have that impact your valuation. Have them inventoried and documented.

It’s Never too Early to Get Started

Your book of business is one of your most valuable assets for your own retirement. When advising your clients, you wouldn’t want them to operate from guesswork about the eventual value of their retirement investments. You connect their investments today to their outcomes at the finish line. Give yourself the same advantage. 

Start working today to understand (and maximize) the value of your business. By investing steadily vs. trying to catch up steadily, you can maximize your ability to get the value you’re hoping for.

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