Equity and Enterprise Value: Building a Practice You Can Sell
Introduction
Many advisors focus on short-term recruiting packages or grid payouts, but long-term wealth often comes from something more durable: equity ownership. While W2 advisors don’t own their client books, independent advisors build practices with measurable enterprise value — creating an asset they can grow and eventually sell.
What Is Enterprise Value?
Enterprise value is the transferable worth of a business — the amount another buyer would pay to acquire it. For advisors, that value comes from:
Recurring, fee-based revenue streams.
Client relationships and retention.
Business scalability (teams, processes, technology).
In short: enterprise value is what makes your practice a sellable asset, not just a job.
The Difference Between W2 and Independent Models
W2 Advisors: At wirehouses and banks, the firm owns the book. When you retire or leave, your clients are reassigned. There’s no equity to cash out.
Independent Advisors: Own their client relationships, brand, and revenue. When they step away, they can sell their business, transition it internally, or partner with a consolidator.
This difference is often the biggest wealth gap between the two models.
How Practices Are Valued
Valuation multiples depend on revenue type, growth, and structure:
Fee-based firms: 2.0–3.5x recurring revenue is common.
Commission-heavy firms: 1.0–1.5x recurring revenue.
Drivers of higher multiples: Younger client base, strong growth, team infrastructure, high % recurring revenue.
For a $1M revenue, fee-based independent firm, a 2.5x multiple could mean a $2.5M+ exit value.
M&A Trends in Wealth Management
The advisor M&A market has surged over the past decade:
Private equity-backed consolidators are paying premium multiples for quality firms.
RIA platforms are competing aggressively for scale.
Studies from firms like DeVoe & Company show record deal activity, with succession planning and consolidation driving demand.
In other words: it’s a seller’s market for well-run advisory businesses.
Why Equity Ownership Matters
Optionality: Independence lets you choose your exit path — sell externally, merge, or transition internally.
Wealth creation: A practice worth 2–3x recurring revenue can dwarf even the biggest recruiting deal.
Legacy: Ownership means you control how clients and staff are cared for after you exit.
Case Example (Illustrative)
W2 Advisor: Produces $1M annually. Retires — firm keeps the book. Advisor receives no enterprise value.
Independent Advisor: Produces $1M annually. Sells at 2.5x revenue = $2.5M liquidity event, on top of years of higher payouts.
The difference isn’t just short-term compensation — it’s lifetime wealth.
Conclusion
Recruiting bonuses may grab attention, but they pale in comparison to the long-term equity value that independence creates. By building a practice you can own, grow, and sell, you set yourself up for a legacy — and an exit — on your terms.
Next Step: Think beyond your next paycheck. Consider what your practice could be worth as an asset — and how independence could unlock that value.
