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Michael Kitces' #FASuccess Podcast: Elizabeth Nesvold on the Evolution of the Valuation of Wealth Management Firms

Raymond James' Elizabeth Nesvold details what investment bankers actually do for wealth management firms.



Welcome back to the 179th episode of Financial Advisor Success Podcast!

My guest on today’s podcast Elizabeth Nesvold. Elizabeth is the managing director and head of asset and wealth management investment banking for Raymond James, which provides investment banking services for some of the largest independent advisory firms engaging in capital transactions. What’s unique about Liz though, is that she has covered wealth management as an investment banker for more than 25 years now, and has seen firsthand how the valuation of wealth management firms has evolved over the decades to become what it is today.

In this episode, we talk in-depth about how an investment banker looks at the valuation of an advisory firm. The way that, early on, RIAs were valued primarily by their assets under management and how evolving advisory fee models, away from the traditional 1% AUM fee, caused a shift for RIAs to be valued by their gross revenues instead. The way further shifts in what advisory firms do (and don’t do) to provide value for their fees, and the associated cost for those services, have caused advisory firm valuations to shift again to focus on multiples of free cash flow instead, and how obtaining a valuation of an advisory firm can be a powerful tool for the firm owner to understand whether the business is really getting a good business ROI on the resources it expends to service its clients.

We also talk in-depth about what investment bankers actually do for wealth management firms, the dynamics of raising capital when starting an advisory firm and who actually can raise capital to start a firm, how it works when an investment banker is engaged to help an advisory firm recapitalize and buy out an existing partner or founder, why advisory firms engage investment bankers to facilitate mergers and acquisitions when buying or selling a firm, and the typical success fee that investment bankers receive to help make sure a deal actually goes through.

And be certain to listen to the end where Liz shares her own journey as someone who sat down at her kitchen table and started her own firm, Silver Lane, that grew into a practice, and then into a business, and then ultimately was sold to Raymond James. How she navigated the challenges in crossing the deserts of profitability that emerged as the business reinvested for growth, and what she learned as a founder that sold her own firm that she now brings to the table in counseling other advisory firm founders that are getting ready to sell their businesses as well.

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