If the key to a business is "location, location, location," buyers are placing the greatest value on the areas with large and growing populations. That means practices in urban settings where populations still are rising have an edge in capturing the most value, Goad says. "We know from talking to practitioners that a lot of their increase in business was solely because of geographic population increases," he says.

The study supported that view, showing the nation's more urbanized and high-growth regions yielding the highest value. The Northeast, for example, topped the regional list with sellers listing an average asking price of $673,500 and a median price of $498,200. At the bottom was the Northcentral region, where asking prices averaged $563,800 and had a median of $417,400.

In terms of the average ratio of asking price to annual gross revenue, the Southwest headed the list with a ratio of 1.86%, followed by the Northeast at 1.82% and the Southeast at 1.74%. Then came the West, 1.68%; the Midwest, 1.58%; and the Northcentral, 1.55%.

Goad notes these are broad generalizations of how regions impact value. A more localized view, he says, would show areas throughout all regions of the country where businesses can thrive. "If you're in Sun Valley, Idaho, your practice may be much higher than average because of the desirability of living in the area and the growing population of high-income people," he says.

Buyers also preferred practices in which 70% or more of the revenue came through fees, according to the report. Eighty-six percent of buyer listings, for example, expressed interest in fee-based businesses, compared with 73% for commission businesses (some listings expressed an interest in both). The report also found that fee-only and fee-based businesses surpass commission-only businesses in asking price-to-revenue ratio. The ratio for fee-only businesses was 2.10%, followed by fee-based businesses at 1.71% and commission-only businesses at 1.10%. The thinking here, Tibergien says, is that buying a commission business is riskier and may result in greater client attrition than buying a fee-based business. "With commissions, what you are selling is a book of business, not a business," he says.

The value placed on location, revenue and fee services has been evident in transactions in which FPtransitions has been involved, Goad says.

In one case, a fee-based practice in Southern California, with annual gross revenues of $360,000, sold for $625,000-a price-to-revenue ratio of 1.73%. The practice, with $36 million in assets under management, also had the 1% revenue-to-assets that sellers look for, he says.

By comparison, a commission-based practice in a small town in Iowa with annual revenues of $100,000 sold for $125,000-producing a price-to-revenue ratio of 1.25%. In this case, Goad says, value was hurt by a revenue-to-assets percentage of 0.24%.

Illustrating the point further, a fee-based practice in Washington, D.C., was recently listed at a price of $466,000-twice its annual revenues of $233,000. The listing got 12 inquiries the first afternoon it was up, says David Grau, FPtransition's chief operations officer. "If we get just 10 inquiries, we usually can get the deal done," he says.

There is evidence, however, that commission businesses are coming back into favor, says Goad. In the last half of 2000, he says, FPtransitions began to see buyers express more interest in businesses that were a mix of commissions and fees. A possible explanation, he says, is that the down market is making financial-advisory clients more likely to consider commission-based planners. Clients who saw their portfolios nosedive last year may be more concerned about losing another 1% from fees, and they may tend to favor commission-based practices as long as the bear market continues. "Towards the end of last year, commission-based books of business became more attractive," Goad says.