Valuation Multiples for a Wealth Management Firm
Wealth management firms play a vital role in helping individuals and businesses manage their financial assets and achieve financial goals. These businesses offer a range of services such as investment management, financial planning, estate planning, and retirement solutions. Whether you plan to buy, grow, or sell a wealth management firm, obtaining a business valuation is vital. During a valuation, business appraisers use valuation multiples for a wealth management firm to determine its fair market value. Additionally, a business valuation provides a clear understanding of the wealth management firm’s market position, potential risks, and growth opportunities. Understanding these factors can help you take the next steps to maximize the value of a wealth management firm.
In this article, we explore valuation multiples for a wealth management firm. It is important to note that the figures presented here are for educational purposes only. To determine the most appropriate valuation multiples for a wealth management firm, it is best to work with a business appraiser.
Peak Business Valuation is here to help! As a professional business appraiser, Peak Business Valuation works with wealth management firms across the nation. We can provide a reliable wealth management firm valuation and answer any questions you may have. Schedule a free consultation with Peak Business Valuation to get started today!
Valuing a Wealth Management Firm
One of the most common methods for valuing a wealth management firm is the market approach. This approach estimates the fair market value of a firm by comparing it to similar companies that have recently sold. As part of the market approach, valuation professionals use valuation multiples to assess the firm’s value based on its cash flow, earrings, or sales. Below, we discuss some of the most common valuation multiples for a wealth management firm. For further details, see How to Value a Wealth Management Firm.
Valuation Multiples for Wealth Management Firms
The following table outlines average valuation multiples for a wealth management firm. Keep in mind that these figures may not apply to your specific firm. For applicable guidance, it is important to work with a professional business appraiser. At Peak Business Valuation, we are here to assist you with a wealth management firm valuation. Peak can also address any questions on valuation multiples for a wealth management firm. Get started by scheduling a free consultation today!
Disclaimer: These multiples are provided for educational purposes only. The information shared does not constitute professional advice, nor do these figures represent the valuation opinion of Peak Business Valuation or its experts. For personalized advice, we recommend consulting a qualified business valuation professional.
What is a Valuation Multiple?
A valuation multiple is a financial ratio that indicates how much buyers are willing to pay for a wealth management firm. These ratios are correlated with key performance metrics like sales, cash flow, and earnings. For wealth management firms, one of the most useful valuation multiples is the seller’s discretionary earnings (SDE) multiple.
For example, if a wealth management firm has $400,000 in seller’s discretionary earnings (SDE) and is valued at a 2.20x multiple, the estimated value is $880,000 ($400,000 × 2.20x). Whereas, if the same wealth management firm receives a 4.05x multiple, its value increases to $1,620,000 ($400,000 × 4.05x).
As a professional business appraiser, Peak Business Valuation specializes in using valuation multiples to value a business. Below, we discuss the average SDE, EBITDA, and revenue (REV) multiples for wealth management firms. If you have questions, reach out to Peak Business Valuation!
SDE Multiples for a Wealth Management Firm
Average SDE Multiple Range: 2.69x – 3.30x
According to Peak’s data, wealth management firms typically transact within an SDE multiple range of 2.69x to 3.30x. To calculate the value of a wealth management firm using an SDE multiple, valuation analysts apply the following formula:
SDE × Multiple = Business Value
For instance, if a wealth management firm generates $490,000 in SDE and transacts at a 2.98x multiple, its estimated value would be $1,460,200.
$490,000 × 2.98x = $1,460,200
When calculating SDE, valuation experts adjust operating profits to account for discretionary and non-recurring expenses. This ensures an accurate understanding of the firm’s earning potential. For more information, see Understanding Seller’s Discretionary Earnings.
Peak Business Valuation is a professional business appraiser that works with wealth management firms throughout the country. We are here to help you with a wealth management firm valuation! In addition, we can discuss any inquiries you may have on valuation multiples for a wealth management firm. Schedule your free consultation with Peak Business Valuation below!
EBITDA Multiples for a Wealth Management Firm
Average EBITDA Multiple Range: 3.26x – 3.82x
Next, wealth management firms tend to transact within an EBITDA multiple range of 3.26x to 3.82x. Here is the formula a business appraiser uses:
EBITDA × Multiple = Business Value
In this case, suppose a wealth management firm generates $420,000 in EBITDA. If it is valued at a 3.55x multiple, its estimated value would be $1,491,000.
$420,000 × 3.55x = $1,491,000
EBITDA multiples are particularly useful for measuring a wealth management firm’s return on investment (ROI). These multiples also help compare similar wealth management firms in the marketplace. For further insights, see What is a Valuation Multiple?
REV Multiples for a Wealth Management Firm
Average REV Multiple Range: 2.10x – 2.65x
Finally, wealth management firms often transact within a revenue (REV) multiple range of 2.10x to 2.65x. The formula is as follows:
Revenue × Multiple = Business Value
For instance, if a wealth management firm generates $650,000 in revenue and is valued at a 2.35x multiple, its estimated value would be $1,527,500.
$650,000 × 2.35x = $1,527,500
REV multiples can be useful in certain scenarios. However, Peak Business Valuation often relies on cash flow multiples such as SDE or EBITDA. The valuation expert will determine which multiples are best as part of the valuation process. Check out The Valuation Process to learn more.
Summary
Whether you are buying, growing, or selling a wealth management firm, obtaining a professional business valuation is essential. As part of the valuation process, a business appraiser determines the firm’s value using valuation multiples for a wealth management firm. In addition, the valuation outlines the firm’s strengths, weaknesses, risks, and opportunities. This enables you to make informed decisions to maximize the value of a wealth management firm.
As a business appraiser, Peak Business Valuation helps individuals throughout the country who are looking to buy, grow, or sell a wealth management firm. We are happy to assist you with a wealth management firm valuation and answer any questions about how to value a wealth management firm. Schedule your free consultation with Peak Business Valuation today!
