Many times, industry experts say, advisors who are looking to buy or sell a practice are frustrated by their inability to ascertain a business's true value.
In response to the problem, 3xEquity, a financial service valuation firm headquartered in Kirkland, Wash., has developed an online tool to help both independent advisors and broker-dealer representatives assess whether the time—and price—is right to sell.
“We had a vision of what the market place needed, what advisors were calling for, and it was a valuation tool where an advisor could go out and get a free valuation,” said Jeff Crosby, 3xEquity founder and CEO. “We also wanted it to be customizable to each advisor’s situation.”
Crosby noted that most valuation tools on the web lack flexibility and take as much as six weeks to provide information.
“Eighty-five percent of it is boilerplate,” Crosby said of tools offered by competitors. “The tools are useful to an extent, but you can’t change any of the variables. We really wanted this to be a real-time tool where advisors could not only see their valuation in front of them, but also understand the future value of their practice based on asset growth, the market and net asset flow. We wanted to educate the advisor so they could see that their practice may be declining in value as their clients are getting older.
“The motivation was for this to be an epiphany for advisors that they may need to grow their business organically, or bring in a partner, or step out of their practice because it is declining in value. We’re hoping users see it as a practice management tool as well.”
For the time being, 3xEquity’s valuation tool, at www.3xequity.com, is free. Users may also purchase a benchmark report for $499 that compares their business to leading peer firms and the national average and recommends tax-efficient structures for mergers and acquisition deals.
Later in the year, the firm plans to transition to a subscription plan, where users pay $49 per month for access to the tool and up to four benchmark reports per year. The firm also plans to create a marketplace where advisors can put their practices up for sale, Crosby said.
Among the variables used by the tool are firm revenue, recurring revenue, number of active clients, net asset flow, average rate of returns and client ages. The tool can instantly estimate total valuation, recurring revenue, and non-recurring revenue at the point of entry, in three years and in five years.
Crosby said 3xEquity has worked with thousands of advisors and is generating interest with larger broker-dealers, too. The website includes a wirehouse comparison tool, where advisors interested in moving between broker-dealers can find the value of their practice based on assets, revenue, payout and time in service, and then see which of the top 10 wirehouses offers the most attractive package.