How performing a practice valuation unlocks your RIA’s value

Advisors looking to boost their RIA’s value will want to tune into an exciting webinar from esteemed panelists later today at 11:30am ET.

InvestmentNews’ live RIA Lab, titled “Uncovering RIA Practice Valuation: A Look Under the Hood” will uncover key factors and considerations that all practice owners should be aware of, from both the seller and buyer perspectives. Click here to register.

“The look behind the hood is going to be asking questions like, how can you make your company more valuable? Have you equitized your next gen talent and your advisors? Have you invested in technology and systems and processes? Are you growing organically?” says Kay Lynn Mayhue, president at Merit Financial Advisors, who will also be a panelist.

“Every year, I see anywhere from forty to sixty valuations that come across my desk," Mayhue highlighted. "What's the most interesting is the diversity of the businesses that we take a look at."

One of the “a-ha moments” Mayhue had thinking about preparing for the session was that “it's not about spending less, it's actually spending more.”

She noted that firms with similar AUM can have vastly different client bases, service models, and growth strategies, all of which can influence their valuation.

“While we talk a lot about EBITDA or free cash flow, there's so much more that goes into analyzing the business for valuation. Sometimes you actually decrease your EBITDA to increase your valuation to show that you're making smart investments for an enduring firm,” added Mayhue.

President and founder of Pointwealth Capital Management, Sandra Cho, another panelist, acknowledges that the industry is facing “an exciting time.”

“The financial services industry is changing in light years,” she says. “Not only do you have AI, but you have M&A activity that is fairly unprecedented, and I don't see that slowing down”

Cho asserts RIA owners should get on the train to optimize and streamline processes “and be able to service your advisors to the best of your ability,” so that they, in turn, can service their clients the same way.

Cho explains that fee-based advisory services have become “a revolutionary thing” that started with LPL in the 80s and has since become “the norm”.

“The reason why it's become the norm, she says, is because RIAs are putting themselves, as an advisor, on the same side of the table as the client.

“You’re acting in their best interest and if you're growing their money and you're doing the right thing, you're growing with the client. I think that's very important,” she says.

With fee-based services, advisors also aren’t limited in the ways they can activate their fee-based business.

“You can charge an hourly rate. You can charge for a particular project, like creating that financial plan for the client, or you can charge for assets under management,” Cho highlighted.

When RIA owners are ready to prepare their business for acquisition, expansion, or sale should be “cleaning up the financials first,” says Mayhue.

She also recommended "equitizing the next generation" and investing in organic growth and technology to demonstrate a scalable, sustainable business model.

“When we see that happen, that's very attractive because it means that the next gen talent is really bought in,” Mayhue explains. “If they haven't done that, we figure out how to do it. That's definitely a component to the valuation we're factoring in if we're going to be the ones that have to equitize that next generation.”

Additionally, if owners can squeeze in lowering the client age and working with the adult children of the client base, “then it gets even more attractive,” added Mayhue.

For more information on the Practice Valuation RIA Lab, click here.