Mastering the Sweet Spot of AUM Acquisitions

There’s no disputing the power of a single large acquisition to propel your business to new levels. Many see it as risky - But that risk can be abated, and 90% to 97% retention success is achievable.

Whether buying or selling AUM, it is important to understand what goes into valuation of AUM.

A major factor in determining the valuation of AUM is the underlying structure of the practice, this will also help to establish who the likely potential buyers or sellers are.

Generally across the industry there are four common ownership structure

  1. Advisor Books

  2. Independent Advisory Practices

  3. Businesses

  4. Firms

What’s the difference? The simple way to look at this, is that the first - Advisor Books, are typically Advisors that are part of a larger broker dealer or Financial Planning platform. The second - Advisory Practices are partnerships or independent fee Advisories. I would suggest that #3 - Businesses would most aptly be related to independent Advisors unaffiliated with a larger firm, these are typically the small RIA practices. And the fourth - Firms, are platforms of multiple Advisors.

Do not Value AUM using a multiple of revenue

While many Advisors may assess the value of AUM by simply applying a multiple of revenue or some similar metric, these may not be the most efficient manner to get to the right valuation and in some cases, if you’re a buyer you’ll likely end up overpaying. In reality, final valuation can be affected by a multitude of factors, at a high level, quality of revenue and demographics of the clients is likely the defining metrics that are most important to consider, but then are there are transition factors and there may be nuances around related groups of clients within the practice.

Pro-tip: Some firms offer internal valuations, be weary of the intent of the firm and how that can impact the transaction and value of AUM

Practices with higher Recurring Revenues tend to demand higher Values, on the flipside no sensible person will pay a multiple on revenue for non-recurring revenue, they will however, pay a certain price for the processes, infrastructure, client base and proximity, but not the same multiples often achieve for recurring streams.

What most buyers want and are willing to pay for, is a high degree of predictability, fee-based revenue businesses can command a higher value and even garner many interested buyers. But predictability and stability comes hand in hand, stability is predicated on factors that are different from just having a fee based business, stability is determined by the actual clients, their professions, their level of wealth, their age, and the probability of these clients remaining far into the future.

After all, when buying AUM, what you’re really paying for is a long term predictable source of cash flow built around a group of individual clients.

Acquiring a business with measures already established to maintain a reliable source of revenues far into future is an attractive proposition to smart buyers.

The Buyer Seller Ratio

While the demographics are shifting in the industry, a well established fee based business can command many interested parties, both on the existing platform and from external sources. In most cases it is easy to attract up to 50 potential buyers in the open market for high quality Revenue/AUM businesses where predictable fee based revenue can be demonstrated, and where the profile of the practice has longevity when looking at the individual client profiles.

For this reason alone, Advisors seeking to acquire AUM must take a strategic approach to gain access early and established themselves as the best possible buyer before the business is ever advertised to others.

Recurring Revenues are Great, but what is the actually profitability. Overhead must be Examined!

Revenues alone can be quite deceiving, and this is where ownership structure can really have an impact of the value of the business.

Inherently, while some structures may offer greater independence, stature and varying operating flexibility over others, these might come at a cost to profitability of the practice. For this reason, valuing AUM on recurring revenues or a multiple on top line revenue alone is less practical, instead each type of practice should be assessed differently. As a buyer, it’s important to understand what you’re getting for your money.

Factors that can affect Profitability

  • Overhead

  • Staff

  • Client Related Expenses

  • Infrastructure and Services - i.e. custodian, back-office, administration, research and data etc.

  • Marketing and Client Retention / Communication Tools

In every case, there are also risks that must be considered, the obvious are often ignored by buyers and not fully factored into the valuation -

  1. AUM & Revenue Quality &

  2. Related transition risks

These are two important factors that buyers should try to wrap their heads around and appropriately discount valuations based on their own perception of how these factors will impact the viability of the transaction, longer term client retention and durability of the income stream.

The underlying quality of relationships with individual clients and predictability of the client’s intent are also important considerations. That is, is this the only Advisor working with the individual clients. What portion of the clients have other Advisor relationships elsewhere, and are those for specified purposes or is it a competing relationship.

As a seller however, these discount in valuation can be mitigated by using a open market approach, if there’s sufficient market demand for your AUM based on jurisdictional appeal, it is easy to achieve surprisingly higher values from an auction like sale.

If the Vibes are Bad, Walk Away, You can Find a Better Partner

Also, as a Seller its important to also be on the lookout for the “vulture” buyer, the best outcome is typically achieved by dealing with a trusted friend or colleague, while Advertising can attract higher bidder, it will likely require greater degree of due diligence and negotiating . Our experience is that Advertised AUM tend to attract some unsavory buyers that will likely frustrate the process, but it can also promote competitive bidding that can lead to higher values.

There is a perception that only AUM that cannot be sold within an existing network is Advertised, maybe, sometime, but this is not entirely true, certainly in most circumstances the good AUM businesses aren’t publicly Advertised, because there’s typical alignment within the Advisor’s network or they’ve pursued partnerships conceived years ahead of the actual transaction.

But depending on the business model and ownership structures, pursuing external buyers by Advertising through a market place can achieve higher valuations for your AUM and competitive bids.

AUM Acquisition is the ultimate substitute for building by Marketing

There’s no disputing the power of a single large acquisition to propel your business to new levels. While most Advisors agree on the potential of AUM acquisitions, many are still hesitant to pursue these because of the inherent risks involved. However, logically AUM acquisitions have no greater risk than traditional marketing activities. When proper due diligence is done, this is the highest yielding investment for any Advisor.

The Elite Wealth Advisor Flywheel

Acquiring AUM to grow is one of the most potent methods to build a large Advisory practice in a short time frame. The Elite Wealth Advisor Flywheel is a technique hinged on AUM acquisition, with a targeted approach. Advisors using this method are able to repeat this strategy over and over in an organized manner to propel their AUM quickly.

  • Step1 - Acquire AUM from others on your platform, these maybe retiring Advisors, carve out AUM sales or others leaving the business altogether

  • Step 2 - Grow the portfolio size of the acquired client by attracting more of their outside funds through service enhancements and dialogue via financial / estate planning.

  • Step 3 - Carve out and sell AUM that is not a fit for your practice or your approach

  • Step 4 - Hire & Train new Associate Advisors to manage portions of your AUM

  • Step 5 - Carve out and sell AUM to your Associates

  • Step 6 - Improve your Advisory offering and Service Quality to attract Assets from the networks around your existing clients and newly acquired clients.

Perpetually rinse and repeat.

Recurring Revenues vs. Transaction Revenues

Some Advisors operate successful and profitable transactional business and while the industry has continued to transition away from the model trading commissions in exchange for higher level of certainty of fee based streams, there’s a market for transactional Books of Business.

The challenge in placing a value on these business is that revenues are often cyclical, dependent on investors sentiments and rising markets. While these transactional businesses can be very lucrative in strong bull markets, in period of declining and flat equity markets, investors tend to trade less and therefore revenues can sporadic and inadequate.

In these businesses, ultimately the highest value sale for a trading book of business is achieved by cultivating a buyer, that it, mentoring an Associate that will be the natural buyer in the long run.

Otherwise, valuing a trading book becomes an exercise of intense negotiation. There are some factors that can enhance values in these scenarios, particularly historical revenue trends, the seller’s willingness to remain involved during a transition for a longer period, and quality and scalability of the existing client relationships.

For trading businesses - “Probability of Continued Revenue” is the number one risk and the real opportunity that buyers are paying for, if they are able to get a high degree of comfort around this factor, they would pay a reasonable price for the business.

Minimize the Transition Risk in AUM Acquisition transactions

The elephant in the room for any acquisition transaction is what every Advisor worry about the most, how to retain the client base and revenue streams related to a new acquisition. More so, if the acquisition is linked to a very specialize offering, maintaining high quality can be a factor in ensuring client retention.

There are two big issues at play, the first is to ensure an efficient and timely transfer of client relationships, the best outcome often involves a genuine interest to build lasting relationships with each client individually. The second focus should be retention - how to nurture and grow that relationship so that the client is excited to pursue a new partnership with the buying advisor. One avenue to achieve this is by first profiling every client and understanding their individual requirements, then look for deficiencies in the service offering that they were receiving and explore avenues to increase the quality of services to satisfy unmet needs.

There are a number of other factors at play to minimize risk including -

  1. Alignment of Business Model, Service Offerings and Service Quality

  2. Client Demographics

  3. Client Networks and Professional Backgrounds

  4. Affluence Level of Each Client

  5. Are there related parties or affinity groups of client’s within the business.

  6. Is there a common Centre of Influence within the clientele that can impact the decisions of others

  7. Tenure of client relationships is an important consideration

  8. Tenure of Advisor / Book of Business

  9. Proximity - is the acquiring Advisor in the same branch, firm

  10. Common Brand - is there a transition to a different brand or same branding

What’s the Actual Risk of Client Attrition in an Acquisition Transaction

In almost every case, there will be some attrition for various reasons when acquiring AUM, for this reason the methodology used for valuations and the terms of the deal should included certain holdbacks or payment completion tied to achieve multiple retention levels. However in practice, the risk is often manageable and actual attrition can be within the 3% -10% range.

For well organized high quality businesses the actual transitional success rates are incredibly high, easily 90% to 97% attainable. But achieving this low level of transition risk and high client / revenue retention often require a great deal of planning, efficient documentation, masterful onboarding and dedicated resources to deliver immediate high quality service levels. There’s also greater transition success in cases where the selling advisor remains involved as a partner for a minimum of one year.

What to look for:

Attrition risk is most often linked to clients that are newer or instances where a deep rooted relationship does not exist. This is where tenure of relationships and quality of relationships are most important. Clients with a long trusting relationship tend to be the most predictable, and these are likely the primary source of recurring revenues. Ultimately these are the high value clients, they are likely to remain long into the future.

Retention risk can also be linked to the demographics of the client base and proximity of the new Advisors. Clients with established professions within the 50-70 age category will tend to require your guidance and counsel more than younger 30 - 50 age group, for this reason, the 50-70 age category offers the acquiring Advisor the most opportunity to add value to these relationships as well and this is the group that offers longevity and scale in revenue streams.

Proximity is really about reducing friction, if most of the elements of services delivery, accessibility, branding and communication remain similar, retention is higher. In scenarios where Advisors acquire AUM within a single branch setting, the transition can be seamless, because there’s low disruption to the client’s communications, simple element like a change in statement formats can be major added frustration for clients.

Avoid High Levels of Disruption - Retention risk is highest where there’s a high level of disruption, that is a different branch or different firm and brand, different client communication methods, Advisor support, administration, custodian, statements etc. Every small shift in service delivery affects the comfort and forces the client to become familiar with something new, and each of these interruptions subsequently inspire the clients to consider their options.


Its clear to see why many Advisors view AUM acquisitions as a higher risk propositions. Simply buying a business based on topline revenues is a risky proposition, understanding the inner working of the business and pricing each of these elements of risk in the transaction will ultimately reduce the risk, implementing transition processes and dedicating time and resources to the transition, forming a transitional partnership with the selling Advisor are all good ways to improve the success of an acquisition. There’s clear evidence of successful advisors growing their revenues and AUM by targeting and executing careful well planned acquisitions and that might just be the sweet spot to fast AUM growth.

The Chairman’s Council |  Strategy Playbook

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May 11, 2021

One AUM Acquisition Transaction or 10 Years of Marketing to Build Your Book

If given the choice between - (a) marketing & building a book of business over a period of 10 years or (b) zooming straight to a $100 million AUM in one year, the choice might seem clear. Almost every Advisor would choose the later, no questions asked, right!

Well actually, while it might seem like (a) should be obvious choice, in reality most Advisors forego this route, without even realizing it. Look around and analyze the path that every Advisor around you are putting to use in growing their book of business and you’ll come to a realization that few have figured out a mechanism that does not involved old fashion marketing and building to grow their business. But curiously, if you look closer at the few that have had massive growth spurts along the way, it is likely that some or all of the big growth in AUM came from some form of acquisitions along the way.

The elusive AUM carve out transaction as some view it, often seem very dependent on luck and many Advisors can have a full career without ever getting an opportunity to grow through AUM acquisitions. But, that is seriously boring, and the thought of not having an edge to grow is daunting.

Do not think of this as an all or none approach. The right mindset is to pursue… continue reading here

May 6, 2021

Money In Motion

A high value niche approach is compelling to access money in motion. But look closer there are many catalyst for Money in Motion in close proximity to you!

Certain events in life, or in one’s career can sometimes act as meaningful catalyst to creating new wealth.

One of the greatest benefits of being active in pursuit of a certain niche and becoming the go to Advisor for that niche is being sought after or referred to for Guidance and Counsel.

The concept of Money In Motion is intriguing, often used in reference to major life events that trigger the change of ownership of significant wealth, traditionally - inheritance in the form of money or real estate or a business or maybe a divorce of a wealthy couple. These types of events often spark a transfer or movement of Assets or a need for Advice, perhaps tax Planning, or restructuring of some sort, affected individuals in these situations can be overwhelmed by the opportunity or corresponding responsibility that comes with new wealth and they often seek out Guidance and Counsel.

The catalyst for distribution of Wealth and Money in Motion can really vary, but one sure thing is that they are create substantial opportunities, here are some of the more obvious catalysts -

  • Personal Life Situations

    1. Divorce

    2. Inheritance

    3. Death of a Spouse

  • Executive compensations linked to

    1. success of a project

    2. sale of an asset

    3. an IPO

    4. success of a Merger and Acquisition transactions

    5. retirement compensation

    6. vesting of options


    1. Major Contract

    2. Sale of Business Asset

    3. Sale of Full or Partial Ownership

    4. Joint Venture Arrangement

Advisors in close proximity with perceived expertise in these particular types of situations are immediately seen as a high value resource. Individuals facing these events are mostly likely to… continue reading here

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