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The RARE Advisor: Quick Path to Increase Valuation

The RARE Advisor: Quick Path to Increase Valuation
Jul 6

One of the quickest ways to increase the value of your practice is a mindset change. It’s subtle, but powerful, and it makes a huge difference in what your practice is worth in the marketplace.


When you're looking to create the most value for your practice, the good news is that it's about not just the balance sheet, but also the P&L statement. Generally speaking, what is best for the client and what is best for your practice is also what is best for you as the owner. We're going to talk about a number of these different items in some upcoming RARE sessions. But most specifically, I want to start you off with the mentality of understanding the merger, acquisition, succession, and transition. Although they kind of have different subsets of what it is you're trying to accomplish, and/or the angle at which you're coming at this from, the reality is the valuation components all go in the same kind of direction.

The first thing is: think of your business truly as a business, not as a job. Meaning...no one really (an investor, an outside investor, a buyer, the advisor from across town who's who's acquiring practices, etc.) wants to purchase your job. They would like, however, to purchase your business. So, therefore, your business has to truly operate as a business. And unfortunately, especially smaller financial advisors oftentimes, they're really only their own boss, they're not really running a business. They're kind of that that sole proprietor, if you will. So again, think in terms of a business vs. a job. What really makes it a business is systems and processes. When you can illustrate to a buyer that you have the ability to push these buttons and pull these levers and see a projected and reliable outcome (much like an assembly line type of an approach), then you have systems and processes. If your business is built on your personality, you might be a great salesperson, you might be able to collect the assets, you might be a wonderful financial advisor, but you're not running a business. At the end of the day, you really have little to sell. Because when you walk out the door, all of the inflow of assets and customers walks out the door with you. Again, you need to have systems and processes.

Another way I like to think about this is: a business owned by a family is much more valuable than a family-owned business. When we think of a family-owned business, we think of a mom and pop shop, we think of a business that is employing other family members, and maybe a few other participants, but the family kind of dominates the position. It's a family-owned business, right? And there's nothing wrong with that. But it is different than a business owned by a family. Let that sink in for a minute. A family-owned business is seldom worth as much as a business owned by a family. For example, in the financial space, think of Fidelity. Fidelity is controlled by the Johnson family. Fidelity is a business owned by a family. It is not a family-owned business. So again, it's a subtle difference in the wording. But it's a dramatic difference in the philosophy of how the operation is managed, how it's strategically directed from the top down. It's truly run as a business. That's what you really need to make sure is your very first step in doing this.

Now again, the good news is that if it's good for the P&L, if it's good for the balance sheet, it's probably going to be good for customers as well. And then you get into the whole discussion about fees. And recurring revenue versus commissions and non-recurring revenue. The commissions and non-recurring revenue are worth less than half of what the recurring revenue is from a valuation perspective. And the reason is, very similar what I said before, if you're a personality-based business, and the personality walks out the door, there's not much left, right? If Rush Limbaugh passes, there's not much left to the show. That's the same kind of philosophy that you're looking at here. Now with commissions it works the same way. There is no ongoing value to that block of business. Now, you might be able to work it, and you might be able to get future value out of it, but it doesn't throw off any revenue at this stage. So, unlike recurring revenue, unlike assets under management, you have the recurring revenue that's highly, highly coveted and is valued much higher in the process. Whereas the commissioned revenue, although it's nice and it's good for the P&L, it's not really good for the ongoing valuation for that balance sheet perspective.

So again, keep these things in mind at the very basic level of mergers, acquisitions, succession, and transition. And no doubt we'll talk about more of this stuff here on The RARE Advisor as well.


The RARE Advisor is a business model supercharged by Recurring And Repeatable Events. With more than thirty years of working with and coaching successful advisors, host Mike Walters (along with other leaders in the industry), discusses what it takes to grow a successful practice. With the aim of helping financial professionals and financial advisors take their business to the next level, Mike Walters shares insights and success stories that make a real impact. Regardless of the stage of your practice, The RARE Advisor will provide thoughtful guidance, suggestions for developing systems and processes that work, and ideas for creating an authentic experience for your clients.

The RARE Advisor is also a podcast! Subscribe today via Apple Podcasts, Google Podcasts, or your preferred podcast listening service for easier on-the-go listening.

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