What gets an advisor top dollar for a book of business

What gets an advisor top dollar for a book of business

What gets an advisor top dollar for a book of business It’s not je ne sais quoi – but something more tangible -- that gets small offices a higher valuation than other firms with much bigger books.
 
Size and revenue and the organization you work for are important factors when an advisor sells their book of business, says David Canter, an exec VP for Fidelity Clearing. But there are several other factors equally vital to snagging a better price for your business.
 
“Market valuation can provide especially useful insights to business owners who anticipate selling their firm in the near future,” wrote Canter in a guest contribution to Financial Planning magazine. “Although buyers may differ on the factors they care most about, valuation can often explain why one firm gets a high offer and another is sold for a so-so price.”
 
Two factors in arriving at the valuation of an advisor’s business are costs and capabilities. While both are easy for a potential buyer to quantify, it’s not nearly as easy to predict how these potential buyers will value them.
 
“Capabilities vary greatly among firms, and can therefore impact valuation in different ways,” writes Canter. “RIAs may list ‘tax planning’ in their brochures, yet the services provided differ drastically.”
 
The final two factors are much more meaningful to the valuation process.
 
A big intangible is leadership. While hard to quantify it’s clear that leaders who bring to the business a vision for the future and are able to distill that to clients, employees and the community, are going to drive a higher price for their firm. The goodwill built into the business from this kind of leadership does influence valuations.
 
“Leaders who build goodwill and attract next-gen advisors with a forward-looking strategy can significantly boost a firm’s valuation,” Canter writes.
 
Lastly, and most importantly, is the client.
 
On this point Canter makes it clear that the valuation of a firm rises exponentially when it delivers to the prospective buyer a client base that is younger-than-average and growing rather than older-than-average and shrinking.
 
Directly tied to this is the client experience.
 
By segmenting the type of experience offered based on the type of client a firm is able to add value where it counts most – in the eye of the customer. That usually leads to a higher valuation from prospective buyers.