Some wealth management firms have incredible valuations and get most of their money in cash when they sell their firms. Others might get a reasonable valuation, but about 80% of the purchase price is paid over time.
The firm tends to have a niche practice that is well defined. If you have a niche practice you will be efficiently serve your Clients. You will have learned how to not only efficiently serve your Clients, but your marketing will be very focused, cost effective and have great results with little effort.
The firm is run as an ensemble firm. One of the concerns that all buyers have is how easy will it be to transfer the Clients to the buyers and have those Clients stay loyal. An ensemble firm will often have several internal people working with Clients and transferring loyalty is much easier than when there is one person who does everything with their Clients.
The firms have a financial planning backbone. Most firms in our business who have great asset management businesses have a recurring revenue model. The firms that also combine strong financial planning will hold Clients during the years they might underperform from the asset management side of the business. A financial planning backbone allows firms to develop deep relationships with their Clients and have a loyal following.
The firms have created significant recurring revenue and assets under management. The larger the business is, the better the multiple that is achieved when its time to sell the practice. Larger firms have a stronger bench and often have four to ten senior advisors that can step in when a senior person leaves. The founders will often have made themselves operationally irrelevant in the practice, which allows buyers to feel better about Client retention.
Have you thought about what it’ll take to sell your practice and receive top dollar? If so, I would love to hear what you think is important.