Valuation question: How much for a $30 mil. book?

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Aug 29, 2008 10:51 pm

What's a fair value (range) if someone were so sell a RIA with $30 million under management?

Aug 30, 2008 11:17 am

It depends on the revenue generated from those assets.  When I was looking on FP Transitions it appeared that most businesses were valued at 1.5 to 2.5 times revenue, with most at the 2x point.  But since there was nothing in my area, I didn't spend a lot of time looking at all the details.

Aug 30, 2008 3:18 pm

the issue is fee based or commissions.  a fee based book is worth a lot more than one that is commission based.  if it is fee based 1.5-2 times trailing 12.  commission based, probably .5-1 x t12.

Aug 30, 2008 3:41 pm

Let's say the book nets $300,000 (based on an average of 1% in management fees) 600K-750K is a fair value?  $300,000 in fees minus 100K overhead will leave you with 200K; it's a 3-4 year ROI.

Aug 30, 2008 4:59 pm

You've gotten rough ballpark info.  Further specifics entirely dependent on the specifics and are usually structured to pay more over time based on how much recurring revenue stays with the firm rather than leaves.  It's value is exactly equal to what someone is willing to pay for it. 

But stop spinning your wheels over stuff such as this, Rodee.  This is NOT a way to plan on entering the business.  Period.  For every seller there are roughly a gazillion prospective buyers, give or take a million.  As someone not even in the business right now your chances of successfully finding and negotiating a purchase such as you describe are probably less than your chances of being hit by lightning.

Keep your eye on the ball, Rodee, and leave the dreaming of impossible dreams to Don Quixote.


Aug 31, 2008 9:21 am

I'm not looking to buy the whole book.  Through mutual friends, I met with a 2-man RIA (they started 2 years ago) who's looking for a 3rd partner that can bring in business.  My professional background is different from theirs and they feel that with our pooled talents/contacts we can bring up the value of the practice.  They're offering me a 1-2 year training/buy-in.

Aug 31, 2008 11:17 am
Rodee:

I'm not looking to buy the whole book.  Through mutual friends, I met with a 2-man RIA (they started 2 years ago) who's looking for a 3rd partner that can bring in business.  My professional background is different from theirs and they feel that with our pooled talents/contacts we can bring up the value of the practice.  They're offering me a 1-2 year training/buy-in.


On the surface of it that sounds intriguing, but it also adds many, many more questions and issues, including the basic valuation question (there is usually a premium for controlling interest, and a discount for minority interest).  I hope you are being advised by someone with experience in such transactions in this the industry so you at least know what issues to be concerned about in negotiating the terms of any agreement.  Based on the level of the questions you have asked so far, it doesn't sound like it. 


Sep 2, 2008 11:28 am

Rodee,

Purchasing a partial book is a great way to get into the business. We (FP Transitions) have worked with a number of advisors who have done this. There are many challenges that you will face, because as Morphius points out, there is an average of 40 buyers for every seller, higher in some states (so a lot of competition). Bottom line - Sellers are looking for the right match when selecting a buyer. If you are the right person for the practice, most sellers will find a way to make the terms work, even if you don't have the most money or the most experience.

To answer your direct question, practice values depend on the size and shape of the practice. At the size you are talking about, $30 mil. AUM, here are the statistics:

Recurring Revenue (fees): 1.5 to 2.7 times the trailing twelve (avg. is 2.27)
Non-Recurring Revenue (hourly/fin. plans): 0 to 1.5 times the trailing twelve (avg. is 1.1)

Hope that helps,
David Grau Jr.
FP Transitions
800.934.3303

Sep 2, 2008 6:04 pm

David,

Welcome!  It is a pleasure to have you here, as your reputation precedes you.  Always helpful to have input from one of the industry leaders in buying or selling a practice.

Hope to hear more from you from time to time.