Practice valuations. Part 3 – Increasing the value of your practice

This article is the third and final in a three-part series on practice valuations and will help you understand what you should do to increase the value of your financial planning practice.


By Guy Holwill, Chief Executive of Fairbairn Consult and Mandy Murphy, Practice Management Consultant for Fairbairn Consult.

The first article, published 2 months ago, explained the Discounted Cashflow approach to arriving at a capital value, while the second article unpacked the simpler calculation methods to arrive at multiple without requiring the outside assistance of a valuation specialist.

Before going into the specifics of how you can increase the value of your practice or client base, it is helpful to think about this with the same mindset that you would have when advising a client who wants to build wealth. Key to that conversation is that the client must grasp the concept that they will never build wealth if they are not prepared to sacrifice something today. Similarly, if you are not prepared to give up upfront commission today, then your practice will be worth very little in the future.

Step 1: Increase recurring revenue

Start transitioning your fee models from upfront income to recurring income over a sustainable period. First start by reducing upfront fees and implementing recurring or ongoing fees with new clients. Then start phasing your fee agreements with existing clients from upfront to recurring income when new business is implemented as a result of financial review meetings over the next year or two. This allows you to transition at a sustainable pace, ensuring that operating costs remain covered while the business gradually builds up its recurring revenue.

As the seller, you should always aim for your ‘first prize’ in terms of the exit arrangement. In other words, an exit that meets your plans and objectives.

Step 2: Increase client stickiness

Prepare clients for your exit (both unexpected, and eventual) by introducing them to your nominated successor or, at the very least, to the idea that you have identified or will select a successor based on a good fit between their needs and what your successor can continue to deliver to them in your absence. Introduce the succession discussion during new client onboarding and at every existing client review; reminding clients of the importance that you attach to their uninterrupted access to advice and services – even (and especially) when you’re no longer around.

Increase the number of engagements with clients through in-person meetings, virtual meetings as well a regular communications, updates and newsletters. Deliver advice, services and value that clients are willing to pay for (through recurring or ongoing advisor fees), and that buyers are able to replicate easily and cost-effectively. Develop a service matrix that drives profitable client engagement, replicable client advice and services, and active client advocacy.

Step 3: Remain open to the buyer’s strategic objectives 

As the seller, you should always aim for your ‘first prize’ in terms of the exit arrangement. In other words, an exit that meets your plans and objectives. However, by understanding what the buyer is trying to achieve, you may be able to offer them something that another seller cannot – which makes your business much more attractive to the buyer.

In conclusion, look at your business and clients through the lens of a buyer and ask yourself what you would be willing to pay. Identify client engagement patterns and behaviours that might help or hurt the strategic objective of potential buyers. If you can increase the attractiveness of your clients, their transferability, and their long term retention, then you will increase the value beyond market norms. By no means are we saying that you should compromise your dreams and goals, but it is possible that you can build a client base and structure a sale in a way that enhances the return on investment for both you and your buyer.

Guy Holwill is the Chief Executive of Fairbairn Consult. He is a qualified Civil Engineer and Chartered Account and has worked in financial services for more than two decades. Guy is passionate about creating business models that thrive in the changing worlds of regulation and customer experience. 

Mandy Murphy is the Practice Management Consultant for Fairbairn Consult. She joined the financial services industry in 1998, is a Registered Financial Planner™ (FPI), and has achieved many accolades since. Mandy was a Director in an IFA until 2007, which led her to her passion for business coaching and practice management which she has been doing since 2008, and since 2010 she has been conducting ‘book-sale’ valuations too. 

Fairbairn Consult is a firm of Registered Financial Advisers. We are a licensed FSP and a member of the Old Mutual Group.