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7 Steps to building long-term value into your investment practice


By Erin Fossett | 5/18/2021

What buyers value

  • Growing, diverse client base
  • Strong brand identity
  • High levels of client retention and satisfaction
  • Diversified, expanding revenue streams
  • Robust profit margins and low overhead
  • Repeatable systems and the latest technology

Building a successful financial practice takes hard work and commitment. But if you want to build long-term value into your practice, there are some steps you can take now to set your practice apart, demonstrating not only past success but future potential.

Traditional metrics, such as multiples on assets under management, don’t always tell the whole story in terms of how potential buyers would value your business. For instance, consider two practices: The first earns $500,000 a year, largely due to a few high-net-worth seniors deeply loyal to the founder; the second earns $300,000 a year, but from a diverse client base that includes professionals in their 40s and 50s.

Based on raw numbers, the first practice may seem more valuable, but buyers may not see it that way. If the biggest clients leave after the founder exits the business, that could significantly impact the value of the business.

Here are some key steps to take now to potentially build the value of your business over the long term:

1. Diversify your client base. If most of your clients are past retirement age, you might consider ways to appeal to younger investors. Some financial professionals offer seminars on college planning or life insurance.

2. Build your brand. If your name is on the door and your personal relationships are the heart of your business, a buyer may be justifiably concerned about what would happen after you leave. But financial professionals who start early to build a unique brand – one that transcends the founder’s identify – establish a durable asset that buyers value. This brand should form the core of all client-facing materials and can be tested and reinforced through client satisfaction surveys.

3. Consider your own compensation. If you’re closely involved in your business, you may underestimate your contribution to profitability. But a buyer will take this into account, discounting the value of your practice by the cost of hiring a professional to replace you. As a best practice, pay yourself a market-based salary consistent with the roles you fill, and be cautious about taking cash distributions or expensing personal travel. While such practices may provide short-term tax benefits, they can erode long-term value.

4. Document your successes. Benchmarking can give potential buyers added confidence in your financial success. Start by tracking one or two key performance metrics on a month-to-month basis, adding more as you develop a system. You can then evaluate trends over time, compare results to industry benchmarks, and target areas for improvement. Many financial professionals also structure staff incentives around key metrics.

Key performance metrics

1. Revenue per client

  • Revenue from new clients
  • Revenue from existing clients
  • Revenues adjusted for market effects
  • Revenue from cross-selling or less

2. Direct expenses related to client serving and acquisition

3. Gross profit (after direct expenses)

4. Client retention rates

5. Financial professional or staff time per client


5. Get a professional opinion. A professional valuation takes the emotion out of the valuation process. A third-party opinion can be especially helpful if you’re working with an associate or family member, cases when you may be tempted to accept less than the practice is worth.

6. Ease the transition. There is often a trade-off between a quick exit and maximizing value in a sale or succession. Buyers may agree to a higher price if you’re willing to work part-time through a transition period to reassure clients and support integration.

7. Invest in technology. No successors would want to acquire a firm knowing they would need to upgrade the CRM system or sort through manila folders. You’re more likely to get the valuation you want if you keep your scheduling, billing, and other systems up-to-date and integrated. The right technology solutions not only ease a transition, they also free up time to spend on building your brand, meeting with clients, and reaching out to prospects — efforts that drive long-term value for your practice.

By Erin Fossett

The concepts presented are intended for educational purposes only. Check with your organization for any specific requirements or restrictions they have related to client related activities.

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