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What’s Your Advisory Firm Worth? Successful RIAs Reveal Secret of True Value

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An alliance of six registered investment advisors who collectively manage more than $20 billion of client assets on Monday released a free white paper that outlines for other RIAs how they can evaluate their firm’s potential true worth to buyers.

The third of a four-part series for advisors, the newest white paper explains why independent broker-dealers are less valuable than RIA firms, while telling indie advisors how they can command a premium for their businesses while avoiding the pitfalls that high-profile deals can suffer.

Titled “Myth vs. Reality: What is Your Independent Advisory Firm Really Worth?,” the paper from aRIA, a think-tank study group, also outlines how advisors can grow the value of their business, dependent on variables such as cash flow, organic growth and risk.

The aRIA Group’s six member RIAs include Brent Brodeski, CEO of Savant Capital; John Burns, principal at Exencial Wealth Management; Ron Carson, CEO of Carson Wealth Management Group; Jeff Concepcion, CEO of Stratos Wealth Planning; Matt Cooper, president of Beacon Pointe Wealth Advisors; and Neal Simon, CEO of Highline Wealth Management. 

‘Multiple Gap’ of Missing Variables Examined

“This paper is for advisors looking to increase the sale value of their firm now, in the future, or who are simply curious about the behind-the-scenes assessment and analysis related to all of these deals we read about in the press,” said John Furey, aRIA’s managing member and principal at Advisor Growth Strategies LLC, in a statement. “This is our most detailed white paper yet, a guidebook for valuation that no advisor in any form, RIA, IBD or wirehouse, who is contemplating a transaction, should be without.” 

The paper lays out what the aRIA members call the “multiple gap,” meaning the missing variables that cause many advisory firms to believe they are worth more than they really are.  It examines whether size really matters, why there are so many valuation models, and how advisors can implement best practices around key value drivers.

Case Study: Luminous Capital Sale to First Republic

In one case study, presented as an example of a high-profile deal that may have created unrealistic expectations for what a firm might be worth, the paper considers Luminous Capital’s 2012 sale of $5.5 billion in assets under management to First Republic Bank for a reported $125 million in cash up front.

“The price and terms of this transaction stunned many leaders in the industry after completing back-of-the-envelope math on the present value of Luminous,” the aRIA Group writes. “Clearly, a strategic buyer was placing a very large premium on the future cash flows of Luminous.”

Luminous was only four years old at the time of the deal, the paper notes, with the partners tripling the size of their assets after the partners left Merrill Lynch – “not a bad reward for a startup business that took tremendous risk leaving one of the largest brokerage firms in the country.”

Yet such deals may create a misplaced sense of confidence with advisors that observe the transitions “and think they will gain a ‘halo effect’ through increased valuations that a well-run business achieved,” according to the aRIA Group. “A negative outcome could be the creation of a ‘multiple gap’ where advisors perceive the value of their business to be far higher than what an educated buyer would be willing to pay for it.”

Download the full, free copy of this white paper, in addition to all of aRIA’s thought leadership, at 

Read Top RIAs Identify 4 Most Critical Challenges for Advisors at AdvisorOne.