More independent advisors are likely to see the values of their businesses stagnate just as they begin to think of exiting the business.
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A recent white paper says this is because advisors tend to treat the business primarily as a source of income instead of building real enterprise value.
Fee compression, recruitment challenges, low market valuation, and limited liquidity mean that advisors must build scale to see their firm survive the owner’s exit.
The white paper says owners have a few choices. They can either accept the status quo or hire a good rainmaker at a cost of about $200,000 a year or approximately 10% of a firm’s revenue.
Or they can build an alliance with a firm that has stronger sales but needs an investment component.
This is difficult to accomplish. But many advisors are reluctant to make significant investments in their businesses because it affects take-home pay. Such advisors should consider making strategic alliances or joint venture partnerships
with other firms.
Such moves can reduce risk, increase profit margins, and spur growth. Of course, the best way to build value in a business is over time and in line with the original purpose for starting the business.
Many advisors fail to lay out a strategic plan for developing their businesses because they do not identify specific reasons for its being or any type of organized growth trajectory.