Organic growth, next-generation talent and an expanding geographic footprint can make an advisory practice more valuable.baona/iStockPhoto / Getty Images
You’ve worked hard to build a successful advisory practice, but have you considered what it’s worth and how you can increase its value over time? Whether you’re planning for an eventual sale or want to maximize long-term growth, understanding what drives a practice’s value is essential.
The most successful advisors think ahead, investing in areas that make their businesses more attractive to potential buyers and create a lasting competitive advantage.
Here are three strategies that can enhance a practice’s valuation significantly and help secure a premium price when the time to make the transition arrives:
1. Organic growth
By far the most critical driver of practice valuation is organic growth – the expansion of your business through client referrals, marketing and business development rather than market movements. While market conditions can affect assets under management (AUM), true organic growth reflects how efficiently and sustainably a practice can scale.
A 2024 survey by Seattle-based advisor consulting firm the Ensemble Practice found that firms grew their AUM by 18.2 per cent on average in 2023. However, after removing the impact of market gains, organic AUM growth was 6.7 per cent.
Firms that can generate consistent organic growth of 10 per cent or more a year can see their valuation rise by as much as 15 to 20 per cent compared with those growing at or below the industry average. Advisors must focus on strategies that drive organic client acquisition and retention to maximize value.
Referrals from existing clients are the most obvious source of organic growth, but firms shouldn’t overlook longer-term strategies such as cultivating centres of influence or investing in paid advertising. While harder to execute, these approaches offer far greater scalability.
2. Next-generation talent
Potential buyers want to know who will help run the practice once the owner steps away. A strong team ensures a seamless transition and maintains long-term client relationships.
While many advisors recognize the importance of having skilled associate advisors, firms often overlook the broader team. To enhance valuation, businesses need well-rounded talent across advisory, financial planning, portfolio management, operations and administration. Firms with high-potential junior staff eager to learn and advance are particularly attractive to buyers.
A practice with a well-developed next-generation team can command a valuation that’s 15 to 20 per cent higher than one without a succession-ready structure. Wealth management is ultimately a people business, and having strong internal talent is a key differentiator.
3. Expanding footprint
Just like diversifying a client’s portfolio, expanding a practice’s geographical reach can smooth out volatility and reduce risk. A broader client base helps protect against regional economic downturns, making a business more resilient and valuable.
The 2015–16 Alberta recession is a case in point. Driven by collapsing oil prices, Alberta’s gross domestic product contracted by approximately 3.7 per cent in 2015 and 3.8 per cent in 2016, while Canada’s national economy still grew. Advisors with a client base concentrated in Alberta likely saw declines in AUM as clients lost jobs or paused investment contributions. Those with a diversified footprint were better positioned to weather the downturn.
A well-executed regional or national expansion strategy can add a five to 10 per cent premium to a practice’s valuation. Geographical diversification ensures steadier growth and reduces the impact of localized economic cycles.
Don’t leave value on the table
If the average Canadian advisory practice, with strong recurring revenue, is valued at roughly two times trailing revenue, implementing these three strategies could raise that multiple up to three times – an increase of 50 per cent.
With so much at stake, neglecting these key growth initiatives could mean leaving substantial value on the table. By focusing on organic growth, building a strong next-generation team and expanding geographical reach, advisors can enhance a practice’s valuation and secure a stronger future for themselves and their clients.
Joe Millott is founder and principal of Acquatio, a Toronto-based company that specializes in wealth management mergers and acquisitions.