What Is Your Book of Business Worth?

Your Advisory book of business is worth what someone else will pay for it, likely in the range of 2-3x your recurring revenue.  Fortunately, today that number is much higher than years’ past, but this could change rapidly over the coming years.  For starters, interest rates increasing means the cost to borrow money will be higher, possibly decreasing the valuation.  Your book is likely comprised of mostly stocks and bonds, which are off to a shaky start to the year, likely negatively affecting your total assets under management. We may be at peak valuations which means if you are looking to exit your practice in the coming years, you may want to take action sooner rather than later.  What can you do today to help your valuation?

There are a few important areas we consider when setting up a succession plan for an Advisor.  Recurring revenue is always going to be the most important factor and will pay more if there is consistent growth.  A book heavily weighted towards retired clients will not be as attractive as money will be consistently leaving this type of book.  We like to see a healthy mix of young and old clients with a year-by-year growth to revenue.  If your book is oversaturated with older clients, maybe it is time to open the door to the children of said clients to bolster your valuation. 

We also look at your current service model.  A client-based service model is less attractive than a process driven one, as it is easier to reincorporate the correct processes than it is to learn how you manage each client individually. This goes in line with a value proposition – what are you actually providing clients?  This value proposition typically translates into your branding and marketing plan, both of which add value. 

Currently, the average multiple Advisors are receiving is slightly over 2x recurring revenue.  However, as averages go, there are plenty of Advisors accepting less from their book of business and there are plenty who are receiving much loftier valuations.  We regularly see (and make offers that are) as high as 5x+ recurring revenue.  These books have three things in common: a history of growing recurring revenue, a modern-day approach to integrating technology, and a service model that is process-oriented.  Think about these three focus areas and how your business currently stacks up.  If there is an area you believe can be improved, no need to fret!  There are easy solutions for each, all that matters is making a small adjustment in your practice and implementing it on a daily basis.

Related: Huge Misconception: Stock Splits Do Not Add Value