Nailing down the valuation of a company is part science, part magic. Similar to the real estate market, there are certain known values, such as assets and staff, but there is more that is unknown.
When it comes to financial services companies, such as financial advisers and brokers, the valuation of a firm is a bit more cut and dried. It is based on the agent’s “book” — the list of clients and assets the agent manages.
Even though the process is pretty black and white, getting a report of the valuation is a bit trickier, with existing companies such as Smart Concept Group and FP Transitions offering hard-copy reports with a six-week lead time, a far cry from most companies’ real-time digital operating speeds.
Jeff Crosby and 3xEquity are bucking that system. The Kirkland-based company now offers its valuation tool to financial planners and brokers for a fee ($499) and provides a digital report within 24 hours. The 22-page benchmark report provides advisers with the firm’s current value, its projected three- and five-year value, how the firm ranks nationally, and suggested business structure for tax purposes.
“For most advisers, their practice is going down in value and they don’t realize it because they are losing assets and clients,” Crosby said. “This tool is a way to get a real good handle on that to see the direction and value of the practice in order to make good business decisions.”
Crosby said the report is especially helpful for independent advisers, though it is useful for wire-house advisers, too.
“There’s a high population of aging advisers who will eventually be getting out of the practice,” Crosby said. “They might see (the firm’s) trend line declining, and it might make sense for them to create a succession plan or sell the practice.”
The report is useful for advisers who work at larger firms such as Merrill Lynch and receive a commission on the assets they manage. These advisers don’t know the total value of their book since it belongs to the company they work for.
“Our tool is a really fascinating tool to help a wire-house adviser determine whether it makes sense to go independent, or stay at their wire house, or even go to another wire house,” Crosby said.
Crosby launched 3xEquity this year after an 18-month incubation period. The company is getting ready to sign licensing agreements with “top broker dealers,” Crosby said. He hopes to venture into offering valuation services for CPAs, accountants, lawyers, and real estate and mortgage professionals.
“This type of report is useful for people that also have equity in their practice but don’t really have an idea what it’s worth or know how to grow that practice,” Crosby said.
Crosby said the reporting system also creates a marketplace for advisers wanting to sell their practice. “Buyers will be able to come to the site to see active advisers looking at selling a practice.”