7 Ways to Maximize the Valuation of Your Financial Advisory Practice

by James Bode James Bode | January 15, 2024

One of the ways in which we have been successful in growing Beck Bode is by inviting like-minded advisors to partner with us. For those advisors who see the world as we do, a partnership with Beck Bode could take the form of merging with our company. This is one way we facilitate the succession plans of advisory firms that may not have the infrastructure, desire, or capacity to provide services for future generations of clients.

As we have gained experience as buyers, Ben and I have also run into a wide range of mindsets on the seller side, of what a financial practice is worth. Many advisors think that the value of their company is some multiple of their recurring revenue. And while it’s technically correct that recurring revenue plays a big role in the valuation of a firm, that’s just where it begins. It’s equally true that there is a lot of value in the tangibles and intangibles that are outside of the recurring revenue stream. 

If you’re even remotely likely to sell your practice, here are some things that a suitor will find important. This is by no means an inclusive list, though it is a good starting point.

1. Develop and Regularly Update A Strategic Business Plan for your Financial Advisory Practice

Putting together an annual strategic plan for your financial advisory business  shows that you have given thought to growth. A potential buyer isn’t necessarily buying what the business is worth today, they are looking at what the business could be worth in the future. 

Having an owner present a suitor with their plan for growth shows a mindset that is positive and proactive: just the kind of practice that buyers like to consider. This doesn’t take the place of obtaining a professional valuation, which you absolutely should do. Especially if you have a team that you’re hoping will stay on beyond your own tenure, you’ll want to have a plan that shows how they will contribute to the future growth of your firm.


2. Create an Operations Manual 

If the thought of creating an operations manual makes you groan, I hear you. The truth is that documenting all the steps of how you run your business is an excellent exercise in evaluating whether you are doing things the best way possible. Are you running your business as efficiently as you can? Are you paying attention to the client experience? Do you have the right positions and people in place to deliver the experience you desire? 

Creating an operations manual doesn’t mean that the future buyer will want to look through all your business processes. It’s the act of doing it that adds value. Knowing that a firm has gone through the due diligence internally of examining everything it does, says a lot about its leadership and its commitment to the business. It also enhances the value of the practice by providing clarity and the ability to scale.


3. Define Your Practice’s Organizational Structure

If you’re a smaller operation, let’s say you have fewer than five people in your organization, you may be thinking, “Organizational structure? We do it all!” Doing it all with limited resources is not the problem. Doing it all without any defined structure will absolutely impact the value of your practice. You will want to create an organizational chart with clearly defined roles and job descriptions for your firm. 

Even if only one or two people are filling all the roles, it’s important to have all the roles defined. This increases the value of your firm by showing potential buyers that you are growth-minded, and once, again, organized. I can’t stress how much organization and structure impact the value of a practice. A ‘mom-and pop’ mentality about the business is a hard habit to break. Not having defined roles and responsibilities is another symptom of the ‘mom-and-pop’ shop.

4. Recruit The Right Financial Advisors To Your Firm

The value of a great team is not to be underestimated. The fact that you were able to attract good talent to your firm already says a lot about you and adds value to your firm. Keeping them also signals value, namely that there is a reason why people have chosen to stay. After all, everyone has a choice, and their choice to stay indicates that you are a good employer. 

Hiring and keeping good people enhances the valuation of your firm because team members who stay on after the sale provide the glue that allows the buyer to succeed. They are the key to client relationships. 

From personal experience, we would argue that the support team or junior advisor becomes of incredibly high value to the buyer. Certainly, in the deals in which we have participated, that is one of the factors that we prioritized. Even though at Beck Bode we have purchased practices that are aligned with our thinking and meet certain metrics, I don’t think we would have completed the transactions had it not been for the assurance that critical team members would stay on after the merger. And when you don’t have a team or aren’t sure that team members will stay on, you need to be prepared to sign an employment agreement for an extended period to ensure a successful transition.

5. Take a Dual Approach to Succession Planning

Prepare Your Clients

People ask, “Well, when do I start doing that?” Why not from the onset of the relationship? Set the expectation that you won’t be doing this work forever. Even if you spend your entire career doing this work, at some point you will retire, grow old, or pass away. That’s just life. We all will, at some point, stop doing what we are doing today. The question is, do we plan for that moment, or do we let it happen to us. Succession planning for advisors is very similar to the retirement planning advisors do with clients. It forces people to look at their longevity, their dreams, and aspirations. 

The primary reason you want your clients to be prepared for your succession is that no one likes surprises, and certainly, people don’t like surprises when they have entrusted their financial future to you. If you are going to sell or transfer your practice to another advisor, it’s only fair that your clients know to whom and how they will fare as a result.

A positive side effect of preparing your clients for your succession is that they become your supporters, possibly even referral sources. Treat your clients well, communicate with them clearly and often, and you will find that they are the ones who will champion your decision to move on once you decide to do so.

Support, Develop and Prepare Your Staff

Just like your clients, your staff does not like surprises. Besides, these are the people who back you day in and day out, and if you have a solid team with whom you communicate clearly and frequently, here, too, you may find support for your succession plan. For example, you may have team members who may be interested in ownership in the firm, but who may not necessarily have the financial resources to engage in a transaction with you at this time. 

Knowing that there is a potential buyer in your organization allows for some creative solutions. If there is solid talent in your firm, and you have clients who are loyal to you and your team, this may be a good succession solution for you. There are ways to finance a sale from within.

On a practical level, it’s important to have open lines of communication with your clients and staff about where you are in the succession planning process, if only because clients are more likely to ask your staff about your plans versus asking you directly. There’s no need to keep this a secret. 

It may not be possible to put an exact figure on the value of getting your clients and staff to be your allies in your plans for succession, but as buyers, we do know that these are two key ingredients, intangible perhaps, that make a firm particularly attractive.

6. Invest in a CRM for Financial Advisors 

A common symptom of small business ownership is that the owner, who started the business from scratch, has a lot of information about the business and its clients in his or her head. This data does not belong in your head! Keeping client data in your head puts your successor in the worst position and is problematic for many reasons. It also ties the value of the company to your physical presence, as opposed to allowing the data to become part of the value of the firm itself. 

One way to increase the value of your firm is to take all that you know about your clients – their likes and dislikes, their hobbies, family members, and so on – and put it into a customer relationship management (CRM) platform. This gives the future buyer a roadmap to success, a way for the future buyer to understand the client base, their needs, and wants. Now you’re not just handing over a list of names to your future buyer; you are transferring relationships. Names are not particularly valuable to a buyer, whereas relationships are.

7: Outsource Your Back Office Support

A well-organized business is backed by a team of professionals. If you want to enhance the value of your business, one way you can do this is by hiring experts to advise you on all the aspects of the business that are not in your own area of expertise. This ranges from billing to bookkeeping, taxes, and legal services. Could you do your own taxes? Sure, you could, but is that the best use of your time and talents? Probably not. 

Also letting your accountant, attorney, and other advisory professionals know that you are preparing for an eventual sale gives you the opportunity to seek their advice on how to best position yourself. 


Strategic Considerations for RIA Valuation Beyond Monetary Gains

In conclusion, I want to underline the point that maximizing your sale value is only one measure of a successful sale. Another is making sure that you have made the right choice for your clients. The top bidder for your firm is not necessarily the best firm to carry forward your client relationships. As you think about preparing your practice for sale, consider what’s most important to you. Where do you land on the spectrum of financial reward for your hard work, and ensuring that your clients will be stewarded well into the future?

Hopefully, you have found some useful tips here on how to enhance the value of our practice. You’re on an exciting path, for sure. We wish you every success!

James Bode is Managing Partner at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business, and life.

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