Factors that determine a retirement plan adviser’s value

Virtually everyone in the retirement plan business concedes that determining the value of an adviser’s plan business is challenging.

For one, so many variables determine it, noted Pam Popp, president of Lockton Retirement Services. These include not only variables among the firms that are potential acquisitions, but also variables among the RIA aggregators that are the acquirers.

“In our business, there are many different models, different industries being served and different payouts due to different kinds of infrastructures,” said Gary Josephs, a principal of the Retirement Benefits Group, an RIA aggregator. “Those all can affect the valuation a firm places on a possible acquisition.”

For potential acquisitions, the important variables are those that constitute the reliability of the firm’s revenue stream, Ms. Popp said.

For example, the skill set of the lead adviser at a firm may be tech-oriented rather than sales-oriented, Ms. Popp said. She and other aggregators place more value on a sales orientation, which can help an acquirer reap greater revenue following an acquisition.

Another major factor cited by several RIA aggregators at the recent Retirement Plan Advice Think Tank in New York is adviser age. Many aggregators place a premium on acquiring the plans of younger advisers because they believe those advisers are more likely to stay and help expand the business.

Aggregators also tend to believe that the price of smaller books of plan business among older advisers may come down in the future as the aging-adviser workforce seeks a retirement exit and as plan sponsors come to expect more from their advisers.

“As a result of the DOL rule, the buyer is now educated for the first time,” said Jeffrey Cullen, managing partner and managing director at Strategic Retirement Partners. “If you are a one- or two-person shop, you will not win plans.”