Your RIA firm is likely your largest asset. Like you would treat a stock portfolio piece, you should assess its value at least annually to see if it’s going up or down. Examining trends in your firm’s value can help you better understand how to increase it—and meet your growth goals.

Here are five valuation-related questions winning RIA firms ask themselves each year.

1. What’s our organic growth rate over the last 3 years?

It’s difficult to predict what kind of growth is in your RIA firm’s future; however, assessing its growth rate over the last three years can help. Specifically, you’ll want to look at what type of clients make up your firm’s growth. For instance, are you experiencing growth among your older or younger client groups?

2. How efficient are our operations?

In gauging the efficiency of your firm’s operations, you’ll want to make sure they’re stable and generating strong margins. Expenses matter, too. A good way to assess your firm’s operations is to benchmark these KPIs against those of similar RIA firms.

Regarding expenses, be sure to identify any that are less than market rate, as this will impact your firm’s value. For example, if you own the building your RIA firm uses for office space, are you charging the firm market rate?

3. What makes up our revenue?

One thing to consider is this: Are you providing commission-based or fee-based advice? Commission-based is not as predictable, as there are more variables involved and it could point to a one-off engagement. Because fee-based advice is related to assets under management, it can be more consistent and easier to measure for valuation purposes.

4. What would happen if we changed X?

Running projections can give you a way to “test” changes that could increase the value of your firm. For instance, you could project your 2023 fees at an increase of X%—and see if and where things are stronger off because of it.

5. Are we mitigating concentrated risk?

Let’s say you have one large family group with a substantial amount of AUM. The fees could be great, but what happens if they leave? Making sure you have a variety of clients—different types and ages and family groups—can help you mitigate concentrated risk. Read more

What’s next for your RIA firm?

If you’d like to get a better picture of your RIA firm’s value, Elevate CPA Group can help you create an annual valuation analysis. This tool lets you calculate your firm’s value and measure it against each year to make sure you’re in line with your plan goals. To get started, contact us today.