The purpose of this study was to provide an empirical analysis of one industry rule of thumb: what is the relationship between the selling revenue multiple for a financial planning practice and the revenue size of the practice? But limited empirical studies have offered analysis of these rules of thumb to help owners determine their succession or exit needs. Previous literature has indicated many rules of thumb in determining the FMV of a practice. It depends on buying and selling market conditions, as well as how the practice was appraised and how the deal was structured. Owners are typically not experts in valuations of their own practices they are like other privately held business owners-they rely on reputable appraisers or financial intermediaries to provide a fair market value (FMV). To successfully exit a financial planning practice requires the owner(s) to meet not only industry regulations, but also their own retirement needs.

1 The industry surveys highlighted in this paper (see Table 2) show that just 25 percent to 38 percent of financial planning firms have a succession plan in place. The combination of large numbers of financial advisers reaching retirement age and the fact that most financial planning practices do not have succession plans in place, means the topic of succession planning remains an important one for the financial planning profession.Īssuming an average retirement age of 68, an estimated 8,600 financial advisers will reach retirement age each year for the next several years, according to Cerulli. The combination of large numbers of financial advisers reaching retirement age and the fact that most financial planning practices do not have succession plans in place, means the topic of succession planning remains an important one for the financial planning profession..The study found that the revenue size of the financial planning practice did have a statistically significant effect on the selling price based on revenue multiple.Industry adjustments such as the quality of a practice’s clients, the quality of the team, and the quality of the platform tend to reside only within specialized financial intermediaries.

Financial statement items alone did not provide a complete picture of the fair market value.

Results suggest that using specialized financial intermediaries favored sellers but not buyers.

To do so, they often rely on appraisers or financial intermediaries to facilitate the exit or succession transition.

To successfully exit a financial planning practice, owners are required to meet industry compliance as well as their own retirement needs.

The purpose of this study was to provide an empirical review of an industry rule of thumb: what is the relationship between a financial planning practice’s selling revenue multiple and its revenue size?.

Īcknowledgement: The author thanks Melisande McCrae, Ph.D. She is an instructor and CFP® program director at Ball State University. Journal of Financial Planning: March 2017Ĭhia-Li Chien, CFP ®, PMP ®, is a succession strategist at the Value Growth Institute.

Fp transitions