Skip navigation

Selling a Portion of My RIA to a Junior Partner

or Register to post new content in the forum



  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
May 28, 2009 5:04 am

So - I have an RIA firm with a couple advisors that work for me as independent contractors.  I’d like to sell a portion of the firm to one of them and wondering the thoughts on valuations given the changes to the industry in the last year.

Revenue is just over $1mm and ebitda is about 350.  So should the value be based on revenue or profits?  Are multiples still in the neighborhood of 2-2.5x rev?  Or is 8x profits reasonable?

I know I could call fptransitions or have my cpa do a valuation - but I’m just curious what others would expect so I have an idea of what to expect when the valuations are actually done.

May 28, 2009 1:38 pm

If they are jsut buying a piece of the book, I would use a book multiple.  If they are buying into the whole business, then a multiple of profits is more appropriate.  It all depends how the profits on the book flow through to them.  In other words, let's say he has a book of 50mm AUM producing 500K.  They receive a payout of, say, 90% because you charge them an override or something, for paying for space, marketing, etc.  Now if you sell them $20mm in assets, and they are still going to get 90% of that, then they should pay based on the book.  However, if you are saying you are going to sell them 20% of the entire business, then they should not have to pay for the entire book, since it is reduced for expenses of the business (unless of course there are hard assets in the business also).

Also, you would have to consider if there is any "management" responsibility that they should be compensated for, assuming that you are somehow compensated for managing the business currently (above and beyond your personal production and/or profit of the business).  You just have to make sure you weed out any inequities that a change in ownership/management structure can lead to.  This is common in owner/operator arrangements in many businesses.   Finally, you both need to be protected against changes in production from each other.  I would be concerned about buying into a business where my profits are directly impacted by the production of the seller.  It's sort of like buying into a medical practice.  If one of the doctors has to stop practicing for whatever reason, there has to be an adequate plan in place to adjust for that (buy/sells, disability, etc.).
May 30, 2009 12:24 am

These are some good points.  Basically I manage most of the firm assets and have 2/3 of the aum with direct clients.  The advisors that work for me are independent contractors that have built their own books but all use my asset management models.

So it seems it's hard to put a value on a chunk of ownership as tecnically I own his client relationships.  What we do from an asset management perspective is proprietary and not duplicable by any of the advisors - so it would be damn hard for them to leave.   But the guy who would like to have some equity in the firm is a good guy and a great asset to the firm.   So, do I:   A) give him some of my clients representing a portion of the firms value and base the price on the value of those AUM? B) sell him "hard asset" value and some small premium for equity in some highly sucessful privately managed accounts? C) something all together different?   He'd be running the retail side of the business and I would work only on institutional relationships.  I do get a salary, but most of my income is based on company profits.  These first two posts are great - any additional constructive feedback would be great.
May 30, 2009 12:25 am

I do know how to spell - but don’t check prior to posting.  It’s f’n hard to move the mouse over to that abc-check button.  Sorry for writing like an idiot.

May 30, 2009 1:10 am

Just based on how you explained it, I would consider giving him a salary (assuming that when you say “running” the retail side, you mean “running” the department, and not just managing the client relationships - in other words, has some management and P&L responsibility) commensurate with his new responsibility and a bonus kicker for profitability based on his ownership stake. You could then negotiate a price/percentage that he could sell his ownership stake for if/when he ever leaves, or if you ever both decide to sell the firm. It’s tough given that fact that the client relationships would be tough to move to another firm.

In other words, it’s not like a typical indy advisor or professional (i.e. attorney, CPA, etc.) that can just leave and take the clients with them. It is more like a standalone business that cannot be broken apart.

Here’s another take on it…both of you get no “production” income. You are both on straight salary (commensurate with responsibility), plus each of your shares of the profits. The expenses of the firm would be all the operational costs plus the production compensation of any other non-owner producing advisors. That is more consistent with a typical business, and most boutique WM firms and family offices. It aligns everyone’s interests much more.

Will he be required to “buy-in” to the firm?

May 30, 2009 1:38 am

In addition to FPTransitions, I would also explore adviserXchange.  Their website is:

  Good Luck with everything!