How To Value A Financial Advisory Practice When Buyers Have Moved Upmarket

Executive Summary

The multiples are public now, which is new. Valuations for advisory firms have climbed for five straight years, the trade press prints the numbers every quarter, and an owner who reads any of it comes away with a rough figure in his head. Deal volume supports the optimism. DeVoe counted 167 transactions in the first half of 2026, the strongest first half anyone has recorded, and the median firm sold at 11.6 times adjusted EBITDA in 2025, up from 8.0 times in 2020.

Those multiples belong to firms with a billion dollars under management. The same reporting puts a sub-$500 million practice at around 5 times EBITDA, and in DeVoe’s most recent buyer survey not one acquirer named a firm under $500 million as their primary target. They keep buying them anyway, 42% of their first-half deals. So the market for a $40 million book is real, it just isn’t priced off the number in the headline. What sets that price is how much of the firm works without the owner in the room, and that is measurable years before anyone runs a valuation.

Curtis has run his firm outside Fort Worth for twenty-two years. Sixty-one, about $40 million, sixty-some households, almost all of them fee-based and most of them with him longer than a decade. He’d read that firms were selling at eleven times earnings. He ran his own numbers, landed somewhere north of two million, and took an informal conversation with a buyer to check it.

The number that came back was less than half of that.

Nobody had explained the gap to him. He wasn’t being lowballed either, which was the part he found hardest to accept.

The Multiple You Read About Belongs To Somebody Else’s Firm

Published multiples are averages across a market where the large deals set the tone. The 2026 range runs from about 5 times EBITDA for a sub-$500 million lifestyle practice up to 13 or 15 times for a billion-dollar fee-only firm with an advisor bench. That is a three-fold spread on the same industry, the same client work, often the same custodian.

The spread has widened as it has climbed. Median multiples went 8.0 in 2020, 9.9 in 2023, 11.0 in 2024, 11.6 in 2025. The firms driving that line up are not the ones at the bottom of it. The platforms with outside capital behind them were offering nine to sixteen times EBITDA and looking mostly at firms between $700 million and $2 billion to do it.

Curtis’s arithmetic wasn’t wrong. He applied a real number to a firm it was never quoted for.

Buyers Say They Want Scale And Keep Buying Small Firms Anyway

The stated preferences are lopsided. Asked to name their primary target size, 46% of acquirers said $1 billion to $5 billion, 27% said $500 million to $1 billion, 9% said above $5 billion, and 18% said they had no size target at all. Zero named anything under $500 million.

Then they went out and bought small firms. Sub-$500 million sellers made up 42% of those same buyers’ first-half transactions. Both things are true at once and the reconciliation matters if you own one of the small firms. You are not what they are hunting. You are what they will take when the terms are right, which means the terms carry more of your outcome than the multiple does.

It also means the ceiling is set. In the same survey, 82% expected valuations to hold steady over the following six months and 18% expected them to fall. Not one respondent expected them to rise. Waiting for the market to lift your number is a plan with no evidence behind it.

Recurring Revenue Is The Base And Transferability Is The Multiplier

Start with recurring revenue rather than AUM. A buyer is underwriting the fee stream that keeps arriving after you stop working, so a $40 million book that is 95% recurring advisory fees prices differently from a $40 million book carrying commission and one-time planning work, even though the headline is identical.

That gets you a base. What moves the number off that base is whether the relationships belong to the firm or to you personally, and this is where most solo practices lose the majority of their value.

The data is blunt about how common the problem is. Of the 12,426 non-exempt advisory firms in the SEC’s adviser records reporting both regulatory AUM and a headcount of investment adviser representatives, 9,276 report a single IAR. That’s 74% of the state running on one person. Their median regulatory AUM is $15.0 million. Firms reporting two or more IARs run a median of $45.8 million, three times the size. Three quarters of the firms in the state sit under $50 million.

Nobody should read that as a promise that hiring a second advisor triples what your firm is worth. Larger firms hire because they got larger. The reason it matters for valuation is the direction of the risk: a buyer looking at a one-person firm is pricing the chance that the clients were never really buying the firm, and the population of firms that look like Curtis’s is enormous, so buyers have seen this exact shape hundreds of times and have a discount ready for it.

What A Buyer Is Actually Underwriting When They Price Retention

Retention in this industry is excellent, which cuts both ways in a negotiation. Schwab’s benchmarking work, now in its nineteenth year and covering nearly 1,300 firms and $2.4 trillion, has recorded 97% client retention every year from 2014 through 2024.

That figure describes firms whose advisors stayed. It says nothing about what happens the year the advisor the clients actually know stops showing up. A buyer knows the difference and prices it, which is why so much of a small-firm deal ends up contingent rather than paid at closing. The retention question is the whole deal for a book like Curtis’s, and we walk through what it does to a purchase price in more detail here.

The practical version for an owner four or five years out is that anything reducing founder dependency shows up in the price. Written process. A second person clients have met and dealt with on something real. Meeting notes and a plan of record that live in the CRM instead of in your head. None of that is glamorous work and all of it is what a buyer is paying for. The same dependency is the piece of a succession plan that degrades worst when you start late.

Structure Changes The Number More Than The Multiple Does

Two offers can carry the same headline valuation and pay out very differently. Very little of a small advisory deal arrives as cash at closing. The rest sits in a note and in an earnout tied to whether the clients stay.

Mercer Capital’s work on earnouts that actually pay draws the distinction worth carrying into a negotiation. Retention earnouts usually measure over 12 to 24 months and generally pay in full when the transition is handled properly. Growth earnouts run longer, often three years, and hang on net new assets or revenue growth, which depend on markets and business development rather than on you handing off well. As Mercer puts it, a dollar of growth-based earnout is generally worth less to the seller than a dollar of retention-based earnout. Two offers quoting the same total are not the same offer if one of them routes more of the money through the second kind.

This is where a smaller firm can recover some of what the multiple took away. You have more say over structure than over the market’s view of your size.

The Four Numbers To Run Before You Ask Anyone For A Valuation

Run these yourself first. They cost nothing and they tell you most of what a valuation will say.

1. Recurring revenue as a share of total revenue, trailing twelve months. Anything that won’t recur for a new owner comes out.
2. Owner’s compensation added back to profit, then subtracted at what it would actually cost to hire someone to do your job. What’s left is the earnings a buyer is buying.
3. Revenue concentration in your top five relationships. A quarter of revenue in five households is a different firm from one with it spread across forty.
4. The share of households that have had a substantive meeting with somebody other than you in the last two years. This is the transferability number and most owners have never counted it.

The fourth one is usually the shock. It’s also the only one on the list you can still change before a sale, which is why it’s worth running now rather than at the point somebody asks you for a number.

Valuation sits inside the wider question of selling, and we cover the rest of that on our selling your practice page.

Curtis is still working. He hired a paraplanner about a year after that first conversation and has been moving households onto shared meetings since. He hasn’t had a second valuation done yet. Our goal is to make sure an owner knows what actually drives his number while there’s still time to do something about it.