It’s been estimated that 90% of all planning firms do not have a formal exit strategy.  If the DOL fiduciary ruling comes to pass,  it will require advisors to have a formal succession plan.   A good time to for attorneys.

So what’s your practice worth?

  • As a multiple of annual fee earnings,   industry standard is between 2 and 3 times recurring fees.  So, a firm with $500,000 of AUM fees can potentially demand as much as $1.5 million.  Of course, there will be factors to consider.  Who are the clients?  How old are they?  Will they remain with the firm after the transition?  Will the new owner be comfortable with the investment strategy currently employed.
  • As a a multiple of profit.  Industry standard is as high as six times.  Now you understand why I like profit over revenue.  A $500,000 business with a profit margin of 60% can demand as much as $1.8 million.

An even more important question is how do you sell it.  Chances are no matter how you value the firm, you will have to finance the purchase.  Rather than a lump sum, expect to receive a series of payments over several years.  You should charge interest.

But what if you don’t want to retire?  This is very often the case with advisors.  I personally know two who are well into their 80’s and still work every day.  Consider an incremental equity sale to a partner.   Personally, I think this structure works best.

An incremental equity sale allows you stay in control even if you don’t wish to work ever day.   It creates an incentive system for a future replacement that gives her equity now and the ability to buy more whenever she wishes.  In the meantime, the current owner receives income for life or until he decides to sell all of the equity.

As a minority owner, she is now entitled to a share of profits equal to her equity stake.  If she wishes to own a greater stake, she can simply buy more equity.  Over time, the value of the company shares should increase, affording the owner a higher and higher purchase price over time.  This approach is better than the simple percentage of revenue which locks in the value at the time of the sale.  Not only does the firm’s founder receive a higher price by selling shares at increasing value over time, he also gives his partner reason to focus on profitability since doing so will raise her share of company profits at year end.

For more details on the succession process, I recommend you visit

The important thing is that you have a plan.  Your practice is a valuable asset, and even if you have enough life insurance to choke a horse, your clients deserve professional assistance if they outlive you.