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Understanding the nuances of valuing a wealth management practice is critical, whether you're evaluating internal equity or preparing to sell a financial advisory business. The valuation process for Registered Investment Advisors (RIAs) is complex, hinging on various factors that contribute to a firm's value. Let's delve into these factors and explore the most common methodologies used to assess a wealth management practice.

What impacts the value of an RIA firm?

The ultimate sale price of an RIA firm is subject to negotiation between buyer and seller. It depends heavily on how the transaction is structured, but the underlying value generally comes down to three key factors: growth, profit, and risk. Here's how these components influence valuation:


Growth is a significant driver of valuation, with key indicators including:

  • Rate of Attrition: The frequency at which clients leave the firm.
  • Assets Added Annually: How much new business is secured each year.
  • Client Demographics: The age, location, and wealth profile of clients.

A consistent track record of growth can significantly increase a firm's value.


Profit is a fundamental measure of a business's financial health, typically evaluated through:

  • Fee Schedule: The structure of fees charged to clients.
  • Advisor Payout Model: How advisors are compensated for their work.
  • EBITDA Margins: Earnings Before Interest, Taxes, Depreciation, and Amortization, a key metric for operational profitability.

Higher profitability often leads to a higher valuation, but the structure of profit generation can vary between firms.


Risk assessment is crucial in determining the stability and longevity of an RIA firm. Considerations include:

  • Revenue Concentration: The extent to which revenue relies on a small number of clients or services.
  • Investment Philosophy: The firm's approach to investing and managing client assets.
  • Use of Technology: The level of technological integration and efficiency.

Higher risk generally leads to a lower valuation, as it introduces uncertainty into the firm's future performance.

Common Valuation Methodologies

With these factors in mind, let's explore the three most common methods used to value a wealth management practice.

Multiple of Revenue

One of the simplest methods to value a wealth management firm relies on a multiple of revenue. This multiple is often applied to Trailing 12-month (TTM) revenue but may be applied using a 3-year average, quarterly annualized, and projected 12-month revenue.

The actual multiple applied to determine the value of the practice depends on how the revenue is generated. In general, a higher multiple is placed on recurring revenue (fee-based), and a lower multiple is placed on the portion of revenue that is transaction-based. The resulting values are added together to determine the total value of the advisory firm.

One problem with a revenue multiple is that it fails to consider other aspects of the wealth management firm that make it unique compared to its peers. Consider the following example:

Comparison: Revenue Multiples
Revenue $5,000,000 $5,000,000
Multiple 2.3x 2.3x
Valuation $11,500,000 $11,500,000
Revenue $5,000,000 $5,000,000
Expenses ($4,000,000) ($3,000,000)
Profit $1,000,000 $2,000,000
Profit Margin 20% 40%

Since both RIAs have the same revenue, we would value each advisory practice the same if we relied solely on a revenue multiple. But a quick look under the hood would reveal different expense structures, resulting in different profitability.

Multiple of EBITDA

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a measure of earnings that eliminates financing costs (interest), non-cash expenses (depreciation & amortization), and taxes. It is often used to evaluate a financial firm's operational performance because it removes the impact of the management decisions mentioned above. Many of the earnings-based multiples you see for RIAs are based on EBITDA.

While an earnings-based multiple is often more accurate than a revenue multiple, it still fails to accurately assess all of the unique aspects of a wealth management firm. Consider the following example:

Comparison: Cash Flow (EBITDA) Multiples
Revenue $5,000,000 $5,000,000
Expenses $3,500,000 $3,500,000
CF / EBITDA $1,500,000 $1,500,000
Multiple 7.0x 7.0x
Valuation $10,500,000 $10,500,000
Annual Growth Rate 1.0% 7.5%

Once we move beyond profits and explore other aspects of the financial practices, we can see that the growth of the two firms has been quite different over the past few years. RIA 1 could also have a very high percentage of revenue generated from its top 5 clients leading to higher risk. These are just a couple of examples of growth and risk, but many of the above factors could impact an investment advisory firm's value.

The advantage of using multiples, including revenue, EBITDA, and others, when valuing an RIA is simplicity. One can get a quick "ballpark" valuation of the practice by doing simple math, but when it comes to making important decisions, multiples fall short of assessing the unique aspects of each financial planning firm.

Discounted Cash Flow

Another method often used to value financial advisory firms is the Discounted Cash Flow method, which uses historical performance, discussions with management, and a thorough understanding of the specific business model to project future financial performance over a defined period. One then calculates a terminal value and discounts all resulting cash flows to present value utilizing a discount rate that reflects the perceived level of risk present to that specific company. The final value is the terminal value plus the discounted cash flows.

While this method relies on some assumptions and predictions, it allows a valuation expert to assess the business as a whole. The specifics of a good Discounted Cash Flow valuation can be quite complex and will involve many relevant factors specific to valuing wealth management firms, which is why it's often best to utilize a valuation expert.

Third-Party Valuations

Third-party valuations gauge the firm's enterprise value for several M&A participants and are often a negotiation starting point. While this valuation reflects what one might expect using an "average" deal structure, it rarely reflects the final sale price.

Most banks and other lenders require a third-party advisor valuation service to assist their underwriting team. Banks are very judicious in selecting valuation firms; consequently, retaining an RIA valuation from a recognized firm with expertise in the RIA industry is essential. 

While SkyView does not specialize in valuations, we partner with several of the leading RIA valuation firms nationwide. We can help you choose a valuation partner that is best suited for your RIA loan.

For valuation assistance, contact us today or call us at (866)567-6282.


Does SkyView perform RIA valuations?

SkyView does not provide third-party RIA valuations. Our network of bank partners requires a third-party RIA valuation for each wealth management loan. SkyView has partnered with a number of the leading RIA valuation firms across the nation and can help financial advisors choose an advisor valuation partner that is best suited for their RIA loan.

In general, what is an advisory practice worth?

Often, advisory practices with a larger portion of their revenue generated from recurring advisory fees attract higher valuations than revenue from non-recurring resources. RIA valuations and multiples vary based on a number of factors.

What are a few of the key factors that these valuation firms use in valuing financial advisory firms?

Here is a list of some of the key factors that drive valuations:

  • RIA practice AUM
  • RIA practice revenue
  • RIA practice EBIDA and EBOC
  • Client demographics
  • Revenue attribution between fee and/or transactional
  • Client service model
  • Rate of client attrition
  • Amount of new assets added annually
  • Fee schedule
  • Investment philosophy
  • Advisor payout model
  • Use of technology
  • Staff relative to households

What is the most accurate method of valuing a financial advisory firm?

SkyView relies on the expertise of our third-party RIA valuation experts to determine the value of each RIA practice. Each RIA valuation firm utilizes a proprietary valuation methodology, but commonly use a multiplier on revenue or EBIDTA.

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