The Transition Equation | Using AI to plan your next move in an evolving marketplace
Authored by Jeff Nash – full article published here.
When Oscar Wilde said, “Nowadays people know the price of everything and the value of nothing” it served as a pointed critique of those who conflate something’s cost with its worth.
In the independent wealth management industry, there is no way to put a price on the mix of pride, excitement and passion, nor the anxieties, sleepless nights and long, hard hours that, together, describe the entirety of advisor-owners’ entrepreneurial journeys. But there are ways to help establish the valuations of the businesses born of these efforts.
For financial advisors considering a change – whether that means selling their business or moving to another firm – numbers matter. There’s utility in having a data-driven business valuation. It offers a fair starting point for negotiations. It aligns expectations. It maximizes your options. It drives questions and provides answers. It reflects the focused approach you’ve taken to building your business through the years and demonstrates that you are coming to the negotiating table as a serious, informed participant.
Position Yourself Well by Taking a Calculated Approach
Preparing today gives you more choices tomorrow. Preparing well equips you to enter and navigate the process with confidence. Arriving at a practice’s business valuation is complex, and goes beyond a quick read of a balance sheet, review of income streams or a “back of the envelope” calculation. Best-in-class valuation tools leverage technology to help guide you along your chosen path and give you the intel to perhaps forge a new one. They allow you to create hypotheticals and analyze different scenarios in different channels. They permit you to model different situations and shift outcomes. They deliver the insights and analysis across a broad spectrum of variables and criteria.
There is no shortage of valuation resources available. And while AI has proven to amplify capabilities and data output, not all tools are created equal. Much of the functionality inherent in these calculators is created at the design stage, and I believe the best ones have been developed by specialists in the RIA recruiting and M&A space.
In fact, the team at Bridgemark Strategies has launched five new tools in the last month, with another set to debut soon. Our transition calculators both answer existing questions and prompt new ones by allowing users to gauge new perspectives, including:
- Determine a breakeven analysis of staying at your current firm versus joining a new broker-dealer, net of client attrition and any potential recruiting transition money.
- Already independent advisors can obtain a quick estimate of their practice’s EBITDA and enterprise value – and estimate their take-home pay including gross revenue, broker-dealer deductions, practice overhead and what’s actually left over. Don’t forget taxes!
- W-2 advisors can estimate take-home pay, including payout grid, deferred compensation and expenses, using sliders to adjust their payout.
- Model different practice value scenarios and see how outcomes shift.
- Stay or Go? Get an idea of what you would take away if you decided to pursue independence versus staying with your wirehouse.
Such calculators are powerful. But like any formidable tool, they must be used properly. Yes, data is generated. But knowing what to do with that data and interpreting it within the context of the wealth management landscape gives power to that information. Advisor-owners are very good at their day jobs, and planning an exit is not something they do daily. That’s why it is imperative that these entrepreneurs engage and work with consultants who operate within this ecosystem every day.
