Question for Independents
There is no set formula. Here are some of the variables. If it is a sticky book, meaning assets that are likely to stay if you were to leave the firm, those assets are worth more to a buyer. If someone that is a stock picker were to sell their book, those assets are with the broker because clients like the stock picking style and results. When the rep steps out of the equation, it will be tougher to maintain the assets unless you are a solid stock picker yourself. Assets in a mutual fund, are likely to stay, so expect to receive more for those assets. The same goes for fee based business, which provides recurring revenue without being forced to make a sale. If you are forced to make a sale to generate revenue, consider it non sticky assets and not worth quite as much to a buyer. Also, the greater the assets per household, the more valuable the book is to a buyer.In better times, people were starting to pay well over two times and even three times annual revenues. You still can get over two times relatively easily. One of the best resources out there for valuating and selling practices is www.fptransitions.com How one transitions a book also impacts the value. In the independent world, firms will try to match you up with a buyer in the firm and transition your book over a period of time to make sure all of the clients stay. You should get the book Going Independent at www.cantella.com because it discusses this stuff and all the other pros and cons about independence.
FP Transitions is definitely worth examining but I wouldn’t stop there. I would also recommend investigating a firm called Adviser Xchange. Their website is: www.adviserxchange.comFeel free to call upon me if you need more help in this area. Best of luck to you! 888-579-8640