Advisor Practice Valuation Factors

Improve Your Market Value

LPL Financial

You never want to sell yourself, or your book of business, short. To better prepare for selling your book and to improve its potential market value, it would be prudent to learn the three key factors LPL’s Business Valuations team consider when assessing an advisor’s book. Making a few simple changes to your book could significantly increase its attractiveness and value.

By making small, manageable changes to your book or the way you do business, you can help improve its market value when it’s time to sell.

Steps to increase your book's market value

Your book of business may be worth more than you think—and it may be worth less. Should you ever decide to sell your book, it’s important to have a good understanding of its value on the market and how you can improve it.

Making a few simple changes to your book could mean the difference between realizing its full potential value and selling it for substantially less than it could be worth. All you have to do is learn some of the key elements of business valuations and adjustments you can make to improve the value of your business.

The following are three significant factors our Business Valuations team consider when assessing advisors’ books.

Client lifetime value

How much potential value will your clients offer the buyer over the course of their lifetimes? The younger the client, the more years they’ll spend in the accumulation phase, and the greater their potential value to a book. This means a younger average age of clients is generally more desirable than and older one.

Tip: Reduce the average age of your clientele by forming relationships with younger clients. Intergenerational wealth planning is a great place to start.   

Asset concentration

How are assets distributed throughout your clientele? Ideally, a relatively even portion of your total assets under management would be controlled by each stratum of clientele, but what’s most important is that you’re not top-heavy. Buyers don’t want to see a disproportionate amount of assets controlled by a small number of your top clients because it creates a significant retention risk.

Tip: Improve asset concentration by adding more accounts similar in size to the upper quartile of your book and by culling small, dormant accounts.   

Recurring revenue

How much of your revenue can be anticipated at regular intervals? This kind of revenue comes from sources like advisory fees and trails, and buyers appreciate its predictability. For a valuation, recurring revenue is typically weighted more than twice as favorably as non-recurring revenue.

Tip: In cases where it’s appropriate for your client, you may consider transferring some brokerage assets to advisory platforms.

For more factors and in-depth advice for improving your business valuation, download the white paper Five Strategies for Improving Business Valuations.

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