FP transitions introduces a valuation benchmarking tool

Many financial advisory firm founders, when they first start their businesses, don't think much about what their firm will be worth as an asset someday. They're understandably more worried about whether the business is generating enough income for them to just put food on their table and survive in the short term, and to meet their lifestyle goals in the intermediate term once they get past the startup phase. But as the firm matures, and the founders get older and closer to retirement, their thinking often does start to shift towards the value of the firm as a whole. Because while not all firm owners go into founding their firms with the intention of selling them someday, the hard reality is that eventually the founder will need to retire, and the two options at that point will be to either (1) hand it over to new (internal or external) ownership, or (2) wind it down and redirect the clients elsewhere. Option (2) isn't ideal for either the advisor (who gets no equity value for the client relationships they built over the years) or the clients (who have to start over again finding a new advisory firm to work with), so it's generally better when thinking about retirement to think about it in terms of a sale – and that means thinking about what a 'fair' price would even be.

In a relatively small and illiquid market like RIAs, it's hard to know what one firm is worth unless you know what other, similar firms have recently sold for. Which raises two additional questions: What firms are substantively similar to each other, and how much are they selling for? This conundrum goes back to the early days of the independent RIA movement, and for nearly 30 years third-party firms have been conducting research to provide benchmarking data so RIA owners can compare and contrast their own revenue, expenses, and profits (and a host of other data) against similar firms to understand which will be more or less valuable – starting with the consulting firm Moss Adams in the late 1990s, continuing with InvestmentNews which inherited the Moss Adams study, branching out into custodians and asset managers like Schwab and DFA who began to release their own benchmarking studies, and expanding further with The Ensemble Practice (led by Moss Adams alumni Philip Palaveev) launching their own annual benchmarking study in 2025.

But while benchmarking studies can be very useful for understanding broadly how a firm compares to its peers, the caveat is that benchmarking studies are static, and the usefulness of the data is heavily contingent on how it's presented in the report. For example, a report might break their benchmarking data down by revenue level, comparing firms with <$1M, $1M–$2M, $2M–$3M, etc. But in reality, a firm with just over $1M in revenue (which might still only have one full-time advisor) might be in a very different situation than one with close to $2M in revenue (which might be approaching three full-time advisors). If an advisor wants to get more granular in the firms they compare themselves to, or go deeper than the higher-level data the study provides, there's a cap to how valuable a published benchmarking study with static categories of "comparable" advisors will be to them in the long run. And because most benchmarking studies are focused on the data of firm operations – not sales or mergers – there's little in them to directly tie firm financial data to a specific valuation.

Which is why it's notable that the M&A and succession consultant FP Transitions has launched a new valuation benchmarking tool, the FPInsights Portal, to help advisors compare their own business performance metrics, and more importantly their overall enterprise value, against similar firms, as well as a new metric that it calls 'Estimated Value Index' that estimates (on a scale of 1 to 100) how well the firm is maximizing its value compared to similar firms.

FPInsights is just one of several business benchmarking tools that have cropped up in the last year-plus to help improve advisory firm owners' visibility into their own business metrics and how they compare with their peers, each of which has used this data for a slightly different purpose. For example, Vitals AI sought to help advisors organize (and often to clean) their business CRM data to be able to understand the health of the business and the profitability of its advisors (but alas ultimately decided to shut down), while AdvisorEconomics (which was co-founded by Michael Kitces) is meant specifically for firms in 'growth' mode, pulling data from the advisor's accounting software and calculating a set of Key Performance Indicators (KPIs) based on the number of clients, advisors, and firm owners to help drive firm growth decisions such as when to hire the next employee or if they have an opportunity to cut overhead costs. In contrast, FPInsights is more specifically geared towards business valuation, whether that's for an external sale or outside investment, internal succession transactions, or loan underwriting for the firm to finance its own acquisitions.

The key point is that while it's one thing to have raw financial and business data on hand – whether that's one's own advisory firm data, or data from a published benchmarking study – it's hard to put that data to use (e.g., to make better business operating decisions to drive firm growth or to improve business valuation for an eventual sale) without cleaning data and being able to contextualize it into what is "normal" (i.e., proper insight into what similar firms are doing). And although many of the firm owner's decisions might be the same regardless of whether they are trying to grow their revenue and profitability or the valuation of the business itself (because at the end of the day a growing and profitable business is likely to be one that someone is willing to pay more for), it's helpful to have multiple solutions available so firm owners can see what they're doing in the context of where they want to be, be it a growing firm that they are continuing to operate and scale up, or a successful sale that allows them to ride off into the sunset.

This article first appeared on the Nerd’s Eye View at Kitces.com at https://kitc.es/advisortech-oct2026, and has been reprinted here with permission.

Ben Henry-Moreland

Ben Henry-Moreland is a Senior Financial Planning Nerd at Kitces.com, where he specializes in writing and speaking on financial planning topics including tax, practice management, and technology. He also co-authors the monthly Kitces #AdvisorTech column. Drawing from his experience as a financial planner and a solo advisory firm owner, Ben is passionate about fulfilling the site’s mission of making financial advicers better and more successful.

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Michael Kitces

Michael Kitces is Head of Planning Strategy at Focus Partners Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Focus Partners Advisor Solutions, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

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