maximize your value

+ 1) Revenue

Generally speaking, there are 3 types of revenue in a financial advisory firm.

1. Transactional revenue is defined as compensation generated from a one-time commission payment. Examples of transactional revenue are compensation paid on the sale of a new insurance policy or annuity contract, commissions made and stock trades, and the small commissions generated from clients with periodic investment plans into mutual fund accounts.
2. Trail revenue is the ongoing compensation generated from the assets base that is not dependent on new sales or transactions. Examples of trail revenue are mutual fund 12b-1 fees and annuity asset trails.
3. Advisory revenue is the compensation you receive through your advisory practice. Examples of advisory revenue are investment management fees or financial planning fees.

Each of these revenue types has a different value to a potential buyer. Advisory and trail revenue are the most valuable because they are recurring and represent future revenue to the buyer. Advisory revenue can be very attractive to a buyer because the client is already paying for the ongoing management and planning and understands the value. Increasing recurring revenue, specifically advisory, will help increase the value of your business.

+ 2) Clients

In a financial advisory business, the clients are ultimately the most valuable asset. When a buyer is evaluating your business for an asset purchase, they are buying the client relationships and the opportunity to serve those clients in the future. There are several client factors that can increase the value to a buyer.

1. Client demographics/multigenerational planning: An older client base is going to be less attractive to a buyer because in most cases their assets are depreciating, and there is a limited window for the buyer to work with them. Having a younger client base or serving your older clients' next generation will have a significant impact on the value of your business.
2. Client Revenue: There are two considerations when evaluating revenue and clients. First, you should review your client concentration. For example, if 90% of your revenue comes for 10% of your clients, this creates a risk to the buyer. If they are unable to retain your top clients, the majority of the revenue leaves as well. The other consideration is revenue per client. A higher average revenue per client is going to demonstrate an engaged client base that values the services being provided and will increase the value of your business.

+ 3) Business

While most advisors will focus on revenue when it comes to business value, having a healthy and sustainable business is key to maximizing that value.

1. Use of technology, including CRM and virtual client interactions: A completely up to date CRM that documents your client relationships is a key factor for a buyer to ensure a smooth client transition. Having technology fully integrated into your business to increase efficiencies and client engagement will increase the value of your business.
2. Reducing key person dependency: This can be a major issue for individual advisors who are running their own businesses. As a sole practitioner, they handle all facets of the business, and when they step away, will the clients stay? The less dependent the business is on you personally, the higher the value to a potential buyer.