Oct 4, 2019

What Makes Your Advisory Firm Valuable to Buyers?

Chris Oddy, Allworth Financial, CFO
Photo Source: Sacramento Business Journal

Updated on July 22, 2020

Two investment advisory sector experts provide insights about how principals should go about getting the best prices for their firms.

With an aging workforce (the advisor demographic is one of the oldest in America), combined with what seems like almost daily news of outright purchases and increasingly creative mergers, even advisors who never before considered a change are curious about what their company might command in a sale.

The fact is, that for those firms that are well-positioned, there’s probably never been a better time to consider the possibilities.

First, what does it mean for an advisory firm to be “well positioned?”

Historically, principals (perhaps understandably) have been led to believe that coming up with a sale price is no more complex than calculating a multiple of revenue and waiting for the phone to ring.

And while M&A is back on the rise, in today’s data (and-people) driven environment, it’s not that simple.

According to Chris Oddy, CFO at Allworth Financial, an expert in firm valuation, there are three things you need to consider when calculating the true worth of your firm:

  • Performance of your business.

Is your business growing organically?

Sure, it’s one thing to have a nice book of clients, but experienced advisors understand that clients pass away, they take distributions, and, increasingly, they move on to greener pastures.

Perhaps more importantly, a lot of advisors didn’t understand that their assets under management were likely artificially inflated by the ten-year bull market.

Firms that command the most offers are doing so because they are growing via marketing.

  • People: Besides you, what does your firm have to offer in terms of talent?

While older advisors are the most likely to consider selling, if your plan is to sell and immediately retire, while that can work, it’s important to realize that (especially for one-man shops) you are your firm.

Ask yourself: Will my company still truly be viable if I manage 100% of the clients, and I suddenly sell and walk away? 

  • Position: What is your firm’s place in the market?

If you have a strong position in a specific market, for instance, you are the “go to” firm in your region for a large and thriving company (or sector) with great salaries and a terrific retirement plan, and you have successfully marketed to that entity for years, that could make your business more valuable than just being a successful general market firm.

Thinking of taking on private equity, or selling outright, or just slowing down your schedule?

To learn more about the types of firms that are most in demand, and the creative kinds of transactions that are impacting the acquisition’s landscape, and why, listen-in to the State of the Industry Podcast as Allworth CEO Scott Hanson interviews, first, Allworth Financial’s CFO Chris Oddy, followed by Ryan Grau of FP Transitions: experts who have long histories of identifying and maximizing the “true” value of small and medium-sized advisory firms.

Listen to the full podcast below, or navigate to the episodes’s page to learn more about the episode.

  • Chris Oddy Interview 01:54
  • Ryan Grau Interview 17:11
  • Wrap Up 31:32