Valuing a Financial Advisory Firm

Valuing a Financial Advisory Firm

According to IBISWorld, “the financial planning and advice industry comprises companies that provide financial planning, financial advice and wealth management to individuals and business clients. Operators also offer advice in conjunction with other activities, such as portfolio management, protection planning, and brokerage services. This industry does not include mutual fund companies, hedge funds, discount brokers, insurance brokers, or other companies that deliver similar services outside the context of a written financial plan.”

With the increasing number of baby boomers, the financial advisory/financial planning industry is experiencing increasing demand. Because clientele plays a large part in the assets under management, financial advisors are seeing an increase in their assets under management. This places owners of financial advisories in a great position. With the expectation of higher growth and increased clientele, now is the perfect time to consider selling your firm or purchasing an additional firm.

Business Valuation

The first step to selling your firm or purchasing an additional firm is to obtain a business valuation. Whether you are considering selling or growing your firm, it is important to understand the market value of your business. A valuation specialist will show you a range of values for your business. They can also consult with you on how to increase and maximize the value of your financial advisory firm.

Peak Business Valuation has provided dozens of business valuations for financial advisory firms across the country. Below we discuss some of the key factors we consider when valuing a financial advisory. Keep in mind, the factors below are only a guide. For additional information, see Value Drivers for a Financial Advisory.

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Market Multiples for a Financial Advisory

  • Annual Revenue: 1.9-3.0
  • EBITDA: 3.3-4.15

**Disclaimer: These multiples have been provided for educational purposes only. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.

The two most common multiples to look at include revenue and EBITDA multiples. These multiples are calculated based on previous transactions in the market. These multiples can range depending on the market, tenure and age of clients, client retention, and the number of willing buyers. While these can give you a general idea of what your company may be worth, there are many details that impact the value of your financial advisory. Working with a business valuation professional, such as Peak Business Valuation, can help you understand what the fair market value of your business is.

Factors Impacting the Value of a Financial Advisory

With a clearer understanding of what your firm is worth, you can begin taking steps to increase the value prior to a sale. A valuation expert considers the following factors when determining the value of a financial advisory. While there are many factors that may impact the value, here are a few to help you understand the worth of your firm and how to increase the value. For more information or questions, schedule a free consultation with Peak Business Valuation, business appraiser California.

Assets Under Management (AUM)

Financial Advisory firms are unique in the sense that they rarely have any “hard” assets. In addition, firms generally do not have machinery or large equipment. Financial advisory firms also do not have inventory. Instead, their greatest asset is their client list, or in common industry lingo, their “book of business”.

A financial Advisor’s book of business includes all the company’s clients. This includes their names and each individuals’ assets invested with a particular advisor. These assets are added together for all clients to calculate the firm’s Assets Under Management (AUM).

Business Model

Most advisors generate revenue in a few different ways. Below we discuss how a firm can generate revenue and how it impacts value.


Revenue for fee-based financial planners comes as they develop financial plans for their clients. These plans are generally prepared for an initial fee. After this, the plan can be modified or altered depending on the client’s situation for an additional fee. This principle applies to insurance sales and commission products as well. The advisor earns a commission from the sale of an insurance product to a client.

 Commission based (investments)

Commission based revenue comes as a percentage of the firms’ Assets Under Management. (AUM) Assets under management are the total amount of money that clients have invested with the firm. Generally, the financial advisor charges a percentage fee (either flat or tiered) on the assets being managed for each individual.

For example, an individual, James, invests $100,000 with a financial advisor. The financial advisor, Frank, charges a 1% commission fee on the total Assets Under Management (AUM) for each client.  The commission fee is charged as compensation for Frank’s time and attention investing the funds on James’s behalf.

If James is Frank’s only client, Frank would realize $1,000 in revenue for the year. ($100,000 x 1.00% = $1,000) Let us assume that many years later, Frank has grown his book of business to $27,000,000 in AUM, then his revenue (Assuming a fixed 1% commission fee across all clients) would be $270,000.

Insurance commissions and other fees

A financial advisory can also create revenue by selling insurance products and other such services.

Percentage of Recurring Revenue

Lastly, a valuation expert will analyze the percentage of recurring revenue. The importance of recurring revenue is discussed more in-depth in Value Drivers for a Financial Advisory firm, but recurring revenue is exceptionally valuable to a financial advisor. This is because it is revenue that occurs each year. It is not a one-time fee, therefore making this business model quite attractive and lucrative.


Understanding the value of a financial advisory is important regardless of any near future transactions. It is never too early to start planning. The first step in the process is a business valuation. Peak is happy to provide you with this. We can also help identify areas to increase the value of your financial advisory firm.

No matter which business model you have established for your financial advisory firm, Peak Business Valuation can help you determine its value! We welcome any questions you may have. Schedule your free consultation call today!


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