YOUR BUSINESS
A Tale of Two $ 1 Billion Firms
Consider two firms with the same AUM but very different outcomes in the marketplace:
Firm A and Firm B both manage $ 1 billion in assets. Yet Firm B consistently fetches a higher valuation. Why? Consider these factors:
• Team composition: Firm A is led by a single late-career rainmaker, supported by staff who maintain client loyalty. Firm B has a diverse bench of advisors with growth capacity and long career runways.
• Growth trajectory: Firm A’ s growth slowed after years of industry-defying success. Firm B’ s growth is accelerating, and it boasts three consecutive years of net new assets above market.
• Client concentration: Firm A’ s top three clients account for 20 % of revenue. Firm B’ s top three clients account for just 5 %, which means less concentration risk.
• Value proposition: Firm A relies on bespoke, in-house asset management. Firm B emphasizes financial planning while outsourcing much of its investment management.
• Client demographics: Firm A’ s clients are an average of 65 years old, which isn’ t so different from the age of the lead advisor. Firm B’ s client base is younger, age 45 to 55, and still in their accumulation years.
The Private Equity Scorecard How do private equity firms assign value? Consider the factors they’ re weighing:
• Organic Growth( or Net New Assets)
This is 40 % of what they consider. PE firms must deliver outsized returns above public markets to justify the illiquidity premium for investors. Firms growing faster than the S & P 500 by at least 5 % become highly attractive, while those that don’ t are often“ unsellable.”
• Scale and Size
This is 20 % of the decision. It takes just as much time and expense to buy a large practice as it does a small one. Bigger teams trying to grow require fewer transactions and integrations, which are a drain on time and resources, so buyers may be willing to pay more for those bigger teams.
• Next Generation Continuity
This is also 20 % of the overall decision. If a strong successor team knows how to win new clients, not just maintain them, it can protect the investment if the firm’ s rainmaker retires or leaves.
• Clients( Retention And Demographics)
This is 15 % of the consideration. A stickier, more diversified client base improves the durability of revenue.
For financial advisors, the question isn’ t whether a buyer will come calling, but how to position themselves to secure the best valuation and deal structure and arrive at a transaction that makes sense for the staff and clients.
• Value Proposition
This is the last 5 % of the consideration of the deal. Whether the target firm is led by planning or investments( or a hybrid of the two), buyers prize repeatability over personality-driven models.
On this scale, Firm B clearly outperforms Firm A. It has multiple suitors to choose from, while Firm A, despite its impressive history, would command lower multiples and less attractive terms.
Why It Matters
Firm B, in this case, boasts growth that outpaces markets, and that offers private equity investors some confidence in their future returns. The firm’ s diversified team reduces key-person risk, while its younger client base offers a natural growth runway. Firm A, by contrast, risks concentration, attrition and reliance on one advisor’ s strategy. If that strategy underperforms— or if the advisor leaves— then the value evaporates quickly.
What Advisors Can Do To Boost Valuations
Advisors positioning their firms for a sale can take practical steps to improve their scorecard. They can think of it like college admissions: They may already qualify for the local school, but if they ace their SATs, they get to choose any university.
Here are some of the steps they can take:
1. They’ ll need to achieve above-market growth. Buyers will want to see what they’ ve done lately, not just what they achieved years ago.
2. They’ ll need to develop next-generation talent. Their successors must not only retain clients but also grow the business independently.
3. They’ ll need to diversify the client base. They can’ t just rely on a few households. They’ ll have to focus on demographics that are historically underserved— such as women, younger professionals and diverse communities.
4. They’ ll have to balance financial planning and asset management. And they’ ll need to ensure that their investment strategies are repeatable and don’ t depend on one individual.
This wave of consolidation is far from over, but the easy money days are. Private equity buyers are no longer rewarding scale alone; they are paying for potential, sustainability and growth. For advisors considering an exit of their business, the challenge is clear: They’ ll need to demonstrate organic growth, build resilient teams and broaden their client base. Those who do will achieve higher valuations, yes, but they’ ll also get to choose their own partners, securing the best future for their firms and their clients.
NEIL TURNER is co-founder of NewEdge Advisors, a growth-oriented RIA built by advisors for advisors, and serves as chief revenue officer of NewEdge Capital Group.
24 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2025 WWW. FA-MAG. COM