How Much Of Your Sale Price Actually Depends On Whether Your Clients Stay

Executive Summary

Every conversation about selling a practice starts at the multiple. Advisors trade the number at conferences, they hear what the firm the town over got, and they benchmark themselves against headlines from a market that has been busy for years. Fidelity counted 276 wealth management transactions in 2025 worth $796 billion in acquired assets, up from 233 the year before, with 102 separate buyers in the market and outside investors standing behind 88% of the deals. The median firm acquired had $508 million under management. Those are real numbers and they set the expectation an advisor walks in with.

What almost nobody tells that advisor is that the multiple describes the headline and not the check. A share of the price arrives years later and only if the clients stay, the split of the price across asset classes decides what the government takes, and both of those move more money than the last quarter turn of the multiple does. The contingent share is growing too. DeVoe surveyed forty executives at firms that buy other RIAs in July 2026, and 82% expect valuations to stay flat through the back half of the year with none of them expecting increases, while 73% said the gap between what sellers want and what buyers will pay is widening. Their answer to that gap is bigger earnouts. So the part of the price that depends on your clients is getting larger at the exact moment sellers are staring at the headline.

Curt is an advisor we talked with this spring. Sixty-one, about a hundred and forty households, a firm he had run out of the same office since the early two thousands. He had taken a call from a buyer and he told us the offer the way everybody tells us the offer, as one number with a letter in front of it.

We asked him what he would actually have in hand a year after closing. He didn’t know. He had assumed that was a question for the lawyers later, and the buyer hadn’t volunteered it, and none of the articles he had read had gotten past the multiple either.

So here is the honest version of what he was actually being offered.

The Busiest Part Of This Market Is Not Looking At Firms Your Size

Deal volume is genuinely high. Mercer Capital counted 97 announced wealth management transactions through May of 2026, and roughly 70% of them involved firms with less than $1 billion under management, so plenty of smaller firms are trading. That is the statistic sellers quote at each other.

The same DeVoe survey that found flat valuation expectations also asked those forty buyers what they’re hunting. 46% named firms between $1 billion and $5 billion. Not one of them named a firm under $500 million as a primary target. Both facts are true at once. Small firms are selling in volume, and the buyers with the most money and the loudest press releases are not the ones buying them.

That matters because of who’s actually out there. Of the 16,125 investment adviser firms in the SEC’s adviser data we work from that file as something other than exempt reporting advisers, 12,290 report exactly one investment adviser representative. That’s 76% of the registered universe running as a one-person shop. The 9,276 of those that report regulatory assets hold $244.6 billion between them. Every one of those firms has a succession problem eventually and almost none of them are a target for the buyers writing the headlines.

An advisor in that group is going to sell to a smaller buyer, most likely a firm a few hours away that wants the book and needs to be certain the book comes with it. A buyer like that has less cash and more reason to make you carry the risk. Which brings us to the part of the deal that actually decides what you’re paid.

A Buyer Is Purchasing The Probability That Your Clients Stay

Nobody buys a client list. There’s no such thing to buy.

Client relationships are not property that transfers on a closing date. They’re consent, and federal law says so out loud. Section 205 of the Investment Advisers Act requires that every advisory contract provide that no assignment of that contract can be made without the consent of the client. Selling your firm assigns those contracts. So every household you have gets asked, in writing, whether they want to keep going. Some of them will use the letter as the first real occasion in fifteen years to think about whether they want an advisor at all.

Advisors hear that and assume the worst, and the aggregate data says the worst usually doesn’t happen. Schwab’s benchmarking study, which surveyed nearly 1,300 RIAs managing $2.4 trillion, found client retention sitting at 97% every year from 2014 through 2024. That’s a remarkably stable number for an industry that changes as much as this one has.

Read it carefully though. That’s retention at firms going about their business, with the same advisor answering the phone. It isn’t retention through a change of ownership, a new name on the statement, a new custodian in some cases, and a letter asking for a signature. Nobody publishes a clean number for that, because the deals are private and the buyers who have it have no reason to share it.

The buyer knows the real range for their own past deals and you don’t. That information gap is why the terms look the way they do, and it’s also why the piece of your firm you spent the least time on is the piece the price hangs from. We wrote about what actually breaks when you start succession planning late, and founder dependency was the one item that doesn’t compress. This is where it shows up as money.

How The Money Arrives, And Over How Many Years

A purchase price is a stack of pieces that behave differently, and the stack is where the negotiation actually is.

Some of it lands at close, in cash, on the closing date. That’s the only part you can count on. Some of it may come as equity in the buyer’s firm, which is worth whatever that firm turns out to be worth on some future date you don’t control. And some of it is an earnout, paid over the following years and measured against something, usually revenue or assets retained.

Being measured against retained revenue means your last dollars are a bet on your own clients after you’ve stopped being the reason they stay. Sellers agree to it constantly without pricing it, because it’s presented as a formality at the end of a conversation that already felt finished.

The years matter as much as the split. A price paid out over time is an installment sale, and the IRS defines that as a sale where you receive at least one payment after the tax year the sale happens in. Under those rules the gain gets reported as the payments arrive, using Form 6252, and that’s mandatory unless you affirmatively elect out and pay the whole bill in year one. There are reasons to elect out and reasons not to, and it’s a real decision with a deadline rather than something your accountant handles quietly in April.

The Allocation On Form 8594 Moves More Money Than A Quarter Turn Of Multiple

This is the part Curt had never heard of, and it’s the part that would have cost him the most.

When a practice sells as assets, the buyer and seller have to split the purchase price across seven asset classes and report that split to the IRS. Both sides file Form 8594, and the instructions are specific about where things land. Class VII is goodwill and going concern value. Class VI is everything else in the section 197 intangibles bucket, and covenants not to compete sit there.

That line between Class VI and Class VII is worth real money to you. Gain on goodwill is a capital gain, taxed at a maximum federal rate of 20% on assets held more than a year. Payments for a covenant not to compete are treated as ordinary income to the seller, taxed at your regular rates, which are higher. The buyer sees the same allocation from the other side and wants the opposite thing, because a covenant is amortized over fifteen years under section 197(d) and gives them a deduction that goodwill treatment structures differently.

So the buyer has a live financial reason to push dollars out of goodwill and into the non-compete and the consulting agreement. Both parties file the same allocation, which means it gets negotiated once and then it’s fixed. An advisor who’s never seen Form 8594 signs whatever the buyer’s counsel drafted, and a piece of the price he negotiated hard for goes to tax at a rate he never looked at.

We’re not your CPA and this isn’t tax advice, and that’s the point. A deal document written by somebody else’s lawyer decides your tax treatment, and you want your own person reading it before you sign rather than after.

The Payout Stack Is The Number Worth Asking A Buyer For

Curt went back to his buyer with four questions instead of a counteroffer on the multiple. We call it the payout stack, and the order is deliberate.

1. What lands at close, in cash, on the closing date. One number, no conditions on it.
2. What’s contingent, what it gets measured against, and over how many years. Retained revenue and retained assets are different bets and the difference is yours to carry.
3. How the price is allocated across the asset classes on Form 8594, with the non-compete and any consulting agreement broken out separately.
4. What you’ll owe in the year of the sale versus in the years after, once the installment treatment is settled one way or the other.

Any buyer who’s done this before can answer all four in an afternoon. A buyer who gets vague on the second and third is telling you something useful about how the rest of the process is going to go.

Curt’s headline number didn’t move much. The cash at close did, the earnout window got shorter, and the allocation came back different. He described the whole thing afterward as finding out he’d been negotiating the wrong number for six weeks.

If A Buyer Has Already Called You

Plenty of advisors reading this are past the planning stage. The call came, the number sounded good, and there’s a document sitting in an inbox.

Ask for the payout stack before you respond to the price. It costs nothing and it reframes the conversation from a number you’re supposed to accept or reject into terms that are actually negotiable. Most of the movement available in these deals lives in the terms, and sellers spend all their room on the multiple and get to the terms with none left.

And know what your firm is worth before somebody tells you. We walked through how to value a financial advisory practice separately, and selling to an outside buyer is one of four paths to RIA succession, so it’s worth being sure it’s the one you want before you optimize it.

Taxes, timelines, client consent, and what a buyer is really paying for are the same conversation from different angles. We cover all of it on our selling your practice page.

Our goal is to make sure advisors know what options are available and make it easier to find those options. Curt got there with six weeks to spare. Most advisors find out after the signature.