| NEW YORK, Sept 2
NEW YORK, Sept 2 When Chicago-based broker Nick
Brait, 62, wrote his five-year plan in 2012, he decided that by
2017, he wanted to spend almost half of every year traveling the
world and sailing the U.S. Great Lakes.
The best way to accomplish that, he figured, was to sell his
financial practice, Lasting Legacy Ltd., and gradually move to a
He and his business partner Mary Moyer-Barrett, 60, started
laying the groundwork. They moved many of their clients to
fee-based accounts to generate a regular source of revenue, and
they had their books audited. They met with four potential
buyers and ultimately sold in 2013 to SAGE Private Wealth Group,
an independent advisory firm with Raymond James Financial
Services run by their former Edward D. Jones & Co colleague,
Their timing was excellent. Registered investment advisory
practices are selling at all-time highs, averaging two to 2.5
times annual revenue, as many firms seek to grow by buying
already profitable competitors.
Although they didn't get top dollar, Brait and Moyer-Barrett
did well. Taha said he offered between one and two times annual
revenue. The deal also included other sweeteners and the chance
for Brait and Moyer-Barrett to stay on in specialized roles,
according to a source familiar with the arrangement.
To be sure, not every retiring adviser will draw a fantasy
price when it's time to sell.
Many advisers do not know the value of their practices and
actually over-estimate how much their businesses are worth,
according to a study by CLS Investment, a Nebraska-based third
party asset manager. It found the average adviser pegged his
practice at $750,000 to $1 million, when in fact not every
practice is sellable at all, many sell for less and often
advisers have to finance part of the sale themselves.
But advisers who plan ahead can use the current market to
build a bigger deal. Here's how.
ASK A PRO
Even advisers who aren't ready to sell should pay for an
independent appraisal of their business. Getting a realistic
figure might help them make transitional decisions, says Randy
Carver, whose Ohio-based Carver Financial Services is Raymond
James Financial Services' top revenue producer.
In September of 2013, he estimated his Ohio-based Carver
Financial Services firm, then with $6.12 million in revenues,
was worth around $10 million. But an independent appraisal put
it at $13 million.
Keeping up clean and independently audited books can raise
the price of a business from, for example, six times earnings
excluding interest, taxes and depreciation, to seven times
EBITDA, says Shirl Penney, president of Dynasty Financial
Partners, which provides services and financing to support RIAs.
DEMONSTRATE RECURRING INCOME
Tom Orecchio of the New Jersey-based Modera Wealth
Management said advisers likely overvalue their businesses
because it is inaccurate to use simple metrics like earnings or
revenue to guestimate business value. Other factors, like steady
income, overhead costs, local markets and type of client also
will factor in. "The most critical (sales point) is not the
earnings, but the culture."
Carver considers the most significant financial factor to be
how much of a firm's revenues are generated by recurring
sources, such as annual advisory fees.
TAKE YOUR TIME
Advisers too frequently sell to the first bidder, often
someone already working in their firm, says Rick Rummage,
president of Washington D.C.-based career consultancy Rummage
Group. Talking to other potential buyers can give a seller
valuable insights and sometimes raise the selling price.
Some advisers may do all the research and take the opposite
tack of Brait and Moyer-Barrett.
Gil Baumgarten has turned down half a dozen potential buyers
since leaving UBS Wealth Management Americas and
starting his own RIA, Segment Wealth Management, in Houston in
He turned down offers of as much as five times his earnings
because he believes he can earn more over the next five years by
continuing to grow his firm. Baumgarten figures that may help
him reap a higher price when he does eventually decide to sell.
(Reporting by Elizabeth Dilts; Editing by Linda Stern and Dan