Valuing a Financial Advisor’s Book of Business

The number of financial advisors, investment advisors, and wealth managers seeking to sell a book of business or an entire financial advisory, investment advisory, or wealth management practice is currently in short supply, in comparison to the number of advisors seeking to buy such practices or books of business. Such ratios may fluctuate according to market events, the number of purchasers or sellers in the marketplace, the overall demographics of investors, and myriad other factors.

Due to the numerous elements that are essential to calculating the value of an investment advisory, wealth management, financial advisor practice, or book of business, it is imperative for both sellers and purchasers to acquire a current and accurate valuation. In fact, the valuation will likely be the starting point for any discussions about a potential transaction.

The Valuation Process

Because financial advisor and wealth management practice values depend upon so many different elements and factors, they are constantly in flux, which makes the process of valuation relatively complex. Further, while a practice may receive a particular valuation according to the numbers on paper, a buyer may not always pay that amount, and a seller may not always accept it.

In addition to determining an advisory practice or book of business’s value, the two parties engaging in the transaction must also determine the structure of the transition (e.g., how long the seller will remain involved with the business, etc.). Once the metrics have been run, any agreement for the acquisition of an advisory practice is ultimately determined through negotiation between the purchaser and the seller. 

Whether you are on the buying end or the selling end of the deal, there are several components that will help you to make an accurate determination of whether the acquisition is warranted and worth its time from your perspective. 


The seller will have to assess the currently-generated revenue that they’re receiving in their advisory practice or through their book of business. As some client attrition is a near-certainty in nearly every such transition, a certain percentage of expected attrition will have to be accounted for, as well.

The financial advisor or investment advisor who is selling will have to determine how they would like the transition to occur and what their level and length of involvement will be during and following the time of the acquisition. 


Long-term success is a primary goal for any purchaser. The purchaser should determine what level of profit they’re seeking and the amount of time within which they want to reach those returns. The seller will want an accurate assessment of future profit expectations, as well as a risk assessment of what and how long it may take to recover from an unforeseen downside event in the market or a loss of clients, assets, or revenue.

Once the buyer determines the amount of capital that will be required from them, they will need to determine whether the returns that they can reasonably expect will justify the investment of their time and funds. 

In determining potential profits, there are many factors that can drive down those expectations, including an older client base, concentrations of assets or revenue, and clients that may not be a fit for the purchaser.


When financial advisors or investment advisors are willing to spend more time on a transition – both from a purchaser standpoint and a seller standpoint – the business can maximize its potential and thereby its valuation. Longer transition periods give the financial advisory practice or book of business’s clients more time to establish strong relationships with the purchaser while the seller is still active. In those scenarios, the clients feel more attended to, and the relationship-building with the buyer is more fluid. 

Other Factors

Likewise, other factors may drive up a valuation. Purchasers may seek to expand their services offered, clientele demographic, or reach by acquiring a book of business with a client base to which they do not currently have access.

If the wealth management practice or financial advisor book of business being acquired offers the purchaser such an opportunity to expand, the purchaser may be willing to pay a premium.

Valuation Methodology

The two most common methods used in practice valuations are multiples methods and income methods. Both such methods assume various market-performance scenarios and various rates of client attrition in multiple models to account for downside risk. 

Multiples Methods

Multiples methods compare a business’s statistics with other businesses that have recently sold. Such methods use either revenue or cash-flow multiples. Multiples of revenue averages a business’s numbers over the past year, for example, in order to determine an average. Multiples of cash flow go a step further and account for the business’s expenses by utilizing net operating income (NOI), earnings before income taxes (EBIT), or EBITDA (earnings before income taxes, depreciation, and amortization).

If an entire practice is the target of the acquisition, rather than simply an individual financial advisor or investment advisor’s book of business, multiples of cash flow would be the multiples method of choice for that valuation.

While multiples methods involve simpler calculations, they do not provide estimates for future revenue, which is arguably the most important projection to a purchaser. Additionally, information regarding similar sales of practices or books of business can be difficult to procure, as the majority of such acquisitions are executed through private transactions.

Discount Cash Flow (DCF) and Single-Period Capitalization

The other most common methods used in valuating a practice or book of business are income methods – both discounted cash flow (DCF) and single-period capitalization. Where multiples methods fall short, income methods do in fact make projections of future cash flow. DCF accounts for risk and makes projections for a specified period of time. Single-period capitalization is an abbreviated form of the DCF method.

While income methods can provide some predictions, market unpredictability will inherently diminish those methods’ reliability. 

Ready to Sell Your Financial Advisor Book of Business?

During any transition, it’s crucial to ensure that the logistics or issues involved do not take precedence over the needs of and attention to current clients. Sellers must ensure that they select a purchaser who will care for their clients with a minimum of the amount of care and attention to which the clients are accustomed.

Purchasers must do their best to familiarize themselves with the clients, their needs, their goals, and their expectations, in order to remain attentive and effective at helping those clients to achieve their objectives.

AdvisorLaw is a one-stop solution with experienced attorneys who understand business law, securities law, and how to complete seamless transactions. If you’re interested in acquiring a financial advisor book of business, or if you’re ready to sell your wealth management firm, we are actively sourcing buyers and sellers with different types of advisory practices in your market.

Learn more about our Practice Purchase Network (PPN), or contact us using the form below for a complimentary consultation.

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