Ep 072: The Financial Mechanics Of Buying Into An Advisory Firm And RIA Valuation Trends with Dave DeVoe

Financial Advisor Success

Michael Kitces

News, Business, Entrepreneurship, Business News

4.8 • 696 Ratings

🗓️ 15 May 2018

⏱️ 113 minutes

🔗️ Recording | iTunes | RSS

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Summary

Today’s guest lives in a very interesting space that is becoming a bit of a hot trend in the industry these days. Dave DeVoe is the founder of DeVoe & Co., a practice management consulting firm for RIAs with a focus on business valuation succession planning and facilitating mergers and acquisitions of advisory firms. After his time leading the Schwab Advisor Services Mergers & Acquisitions program—and now working as an independent consultant who runs one of the industry’s leading deal book tracking studies on financial advisor M & A activity—Dave has a deep history in consulting on and tracking the trends of advisory firm mergers and acquisitions and the value of firms themselves.

In this episode, Dave talks about the mechanics of advisory firm deals from the buyer’s perspective, including the main considerations that go into valuation. Listen in to hear his expert perspective on the buyer and seller trends in the industry, the flaws in the traditional 2x revenue valuation estimate for a firm, and why he sees it as both a buyer’s market and a seller’s market right now.

For show notes and more visit: https://www.kitces.com/72

Transcript

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0:00.0	Welcome to the Financial Advisor Success Podcast, where you go behind the scenes with financial planner,
0:08.4	speaker and consultant Michael Kitsis to hear stories of how leading financial advisors
0:13.6	navigated the inevitable challenges that arise on the path to success and get insight from leading
0:19.2	industry consultants about how to break through to the
0:22.0	next level in your advisory business. And now here's your host, Michael Kitsis. Welcome, everyone.
0:29.7	Welcome to the 72nd episode of the Financial Advisor Success podcast. My guest on today's podcast is
0:35.5	David DeVoe. Dave is the founder of DeVoe and
0:37.8	company, a practice management consulting firm for RAs with a focus on business valuation
0:42.2	succession planning and facilitating mergers and acquisitions of advisory firms. What's unique about
0:47.8	Dave, though, is the deep history that he has in consulting on in tracking the trends of
0:52.2	advisory firm mergers and acquisitions and the value of firms
0:55.3	themselves, both previously at Charles Schwab, where he led Schwab Advisor Services Mergers and
1:00.3	Acquisitions Program, and now as an independent consultant who runs one of the industry's leading
1:04.3	deal book tracking studies on financial advisor M&A activity.
1:08.6	In this episode, we talk in depth about current trends in the
1:11.6	valuation of advisory firms, the flaws in the traditional two-time revenue valuation estimate for a firm
1:17.3	and why can actually vary as low as one-time revenue or as high as nearly 3x. Why focusing on
1:23.3	profits and a multiple of free cash flow actually leads to better valuations than looking at
1:27.8	multiples of revenue alone. The growth profitability and risk factors that impact the valuation
1:33.3	multiple for an advisory firm, and how in the end an advisory firm is still, like any business,
1:38.7	ultimately price based on the present value of future cash flows. And thus why Dave's firm takes
1:43.2	a discounted cash flow
	...

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