Earnings before interest, taxes, depreciation, amortization.
Percentage of clients retained annually (0-100).
Lower average age typically increases valuation.
Valuation Estimates
Estimated Market Value (Range):–
Revenue Multiple Method:–
EBITDA Multiple Method:–
Implied Revenue Multiple:–
Practice Quality Score:–
How to Value a Financial Advisory Practice
Valuing a Registered Investment Advisor (RIA) or wealth management practice is a complex process that moves beyond simple revenue multiples. While the "2x Revenue" rule of thumb was common in the past, modern valuation methodologies take a granular look at the quality of revenue, client demographics, and operational efficiency.
Primary Valuation Methods
This calculator utilizes a hybrid approach considering the two most prominent methods in the industry:
Revenue Multiple Method: Historically the standard for smaller practices. It applies a multiple to the Gross Revenue. High-quality practices with >90% recurring revenue often trade between 2.2x and 3.1x revenue. Practices with transactional (commission-based) revenue trade lower, often between 0.8x and 1.2x.
EBITDA / Cash Flow Method: Preferred for larger firms (typically over $5M in revenue) or those being acquired by aggregators. This looks at the operational profit margin. Multiples here range significantly from 5x to 9x (or higher for large platforms).
Key Factors Influencing Your Multiple
Not all revenue is created equal. Buyers dissect the following metrics to determine the exact multiple applied to your practice:
1. Recurring Revenue Percentage
This is the single most critical factor. Fee-based revenue (AUM fees) is highly predictable and transferable. Commission-based revenue (annuities, insurance trails) is viewed as riskier and less valuable. A practice with 95% recurring revenue will command a significantly higher valuation than one with 50%.
2. Client Demographics (Age)
The age of your client base impacts the longevity of the revenue stream. If your average client age is 75, the assets are likely in the distribution phase (decumulation), reducing future revenue potential. An average client age below 60 suggests an accumulation phase, which adds a premium to the valuation.
3. Client Retention Rate
Stability is key. Retention rates above 95% demonstrate strong client relationships and service models. Rates below 90% raise red flags about service quality or competitive threats.
Using the Calculator
To get the most accurate estimate from the Financial Advisor Practice Valuation Calculator above, ensure you input "Trailing 12-Month" (TTM) figures. The Adjusted EBITDA should add back any personal expenses run through the business (e.g., owner's personal auto lease, one-time consulting fees) to show the true profitability of the practice to a potential buyer.
function calculatePracticeValue() {
// 1. Get Input Values
var revenue = parseFloat(document.getElementById('grossRevenue').value);
var recurringPct = parseFloat(document.getElementById('recurringPercentage').value);
var aum = parseFloat(document.getElementById('aum').value);
var ebitda = parseFloat(document.getElementById('ebitda').value);
var retention = parseFloat(document.getElementById('clientRetention').value);
var age = parseFloat(document.getElementById('clientAge').value);
// 2. Validation
if (isNaN(revenue) || isNaN(recurringPct) || isNaN(ebitda) || isNaN(retention)) {
alert("Please fill in all required fields (Revenue, Recurring %, EBITDA, Retention) with valid numbers.");
return;
}
// 3. Logic: Calculate "Base" Revenue Multiple
// Industry baseline usually starts around 2.0x for average mix
var baseMultiple = 1.8;
// Adjust for Recurring Revenue (The biggest driver)
// If 100% recurring, add up to 0.9x. If 0%, add 0.
// Scale: (RecurringPct / 100) * 0.9
var recurringAdjustment = (recurringPct / 100) * 1.0;
// Adjust for Retention
// If retention > 95%, bonus. If = 97) retentionAdjustment = 0.2;
else if (retention >= 95) retentionAdjustment = 0.1;
else if (retention < 90) retentionAdjustment = -0.2;
// Adjust for Client Age
// 70 is discount
var ageAdjustment = 0;
if (!isNaN(age)) {
if (age < 55) ageAdjustment = 0.15;
else if (age 70) ageAdjustment = -0.15;
else if (age > 75) ageAdjustment = -0.3;
}
// Adjust for Profit Margin (EBITDA / Revenue)
var margin = (revenue > 0) ? (ebitda / revenue) : 0;
var marginAdjustment = 0;
if (margin > 0.50) marginAdjustment = 0.2; // Extremely efficient
else if (margin > 0.35) marginAdjustment = 0.1; // Healthy
else if (margin < 0.20) marginAdjustment = -0.2; // Inefficient
// Calculate Final Revenue Multiple
var finalRevMultiple = baseMultiple + recurringAdjustment + retentionAdjustment + ageAdjustment + marginAdjustment;
// Cap reasonable limits (Market rarely goes below 0.8x or above 3.5x for standard practices)
if (finalRevMultiple 3.6) finalRevMultiple = 3.6;
// 4. Logic: Calculate Valuation based on Revenue Method
var valRevenueMethod = revenue * finalRevMultiple;
// 5. Logic: Calculate Valuation based on EBITDA Method
// Small firms: 4-6x, Medium: 6-8x, Large/Strategic: 9x+
var ebitdaMultiple = 5.0; // Base
if (revenue > 1000000) ebitdaMultiple += 1.5;
if (revenue > 5000000) ebitdaMultiple += 2.0;
if (recurringPct > 80) ebitdaMultiple += 1.0;
if (retention > 95) ebitdaMultiple += 0.5;
var valEbitdaMethod = ebitda * ebitdaMultiple;
// 6. Weighted Average (Small firms lean on Rev multiple, Large on EBITDA)
// If revenue 1M, 50/50.
var finalValuation = 0;
if (revenue 95) score += 10;
if (margin > 0.3) score += 10;
if (!isNaN(age) && age 100) score = 100;
if (score 80) scoreText += " (Premium)";
else if(score > 60) scoreText += " (Strong)";
else scoreText += " (Average)";
document.getElementById('qualityScore').innerHTML = scoreText;
// Show Results
document.getElementById('results').style.display = 'block';
}