January 23, 2026 • 44 mins
Considering an exit isn’t about timing retirement—it’s about maximizing the value of what you’ve built before the window shifts.
In this episode of Advisors Off Script, Shelby Nicholl talks with Scott DiGiammarino of JPTD Partners about what’s driving advisor valuations today, how private equity and PE-backed buyers evaluate firms, and what advisors can do now to command premium multiples. Scott explains why many sellers are exiting earlier than you might expect, how “sell-and-stay” deals work, and why growth—not age—is often the real trigger for an exit conversation.
In this episode, we cover:
- What actually drives advisor valuations today
- How buyers evaluate growth, EBITDA, and recurring revenue
- Why clean governance, compliance, and financials matter more than ever
- How platform choice (RIA vs BD) affects deal structure
- The hidden risks that can derail or kill a deal entirely
- Why waiting can cost you millions
This isn’t just about selling. It’s about leverage, optionality, and protecting the value of your firm before making your next move.
Hosted by Shelby Nicholl. Produced and edited by Aaron Sherman. Operations and Guest Coordination by Shelly Hadel.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:06):
Advisors, I really wannaknow, what is your number?
No, really.
If you had to sellyour practice, what
would it be worth?
If you're like mostadvisors, you've built
something meaningful.
But the number, your valuation,it might surprise you.
Today's episode is for everyadvisor who has spent years
in the trenches and wantsto make sure that they don't
(00:28):
leave money on the tablewhen it's time to exit.
. My guest today is the guy thatadvisors call when they're
ready to sell and ready to win.
Scott DiGiammarino, or everyonecalls him DiG, or DG, is the
founder of JPTD Partners.
a boutique consulting firmthat has helped countless
RIAs, hybrids, and insuranceagents maximize their valuation
(00:51):
and find the right fit.
Buyer, think private equity mand a, the kind of deal
flow that most advisors.
Sort of know about butdon't really know about.
He's Let's get into it.
Shelby, first all,thank you for having me.
I'm excited to be here.
I get almost 40 years offinancial services experience.
So I was an advisorfor a number of years.
I got into leadership atthe Old American Express
(01:13):
Financial Advisors.
I basically ran theMid-Atlantic, for American
Express, which is now,like I said, Ameriprise.
I was in charge of about 200offices in 2,600 financial
advisors back in the day.
Left to start someentrepreneurial ventures
a couple years ago, butdid a bunch of board
work in the industry.
And then about five years ago,six years ago, uh, a really
good friend of mine named TedJenkin, who I hired out of
(01:35):
Boston College, when he was 22years old, called me and he was
a $2 million RAA in Atlanta.
And he is like, dude, Ijust sold my business for 15
million bucks and I got tostay for as long as I want.
I'm like, you gottabe kidding me.
and so, um, he sold to WarburgPincus and I called Warburg
and I said, is this true?
And they said it was, and it wasthe first time private equity
(01:57):
or private equity backed firmsare getting involved in buying
financial advisor practices.
And they asked me if, ifI'd be interested in helping
them grow and expand.
So that was kind of the genesisof our entire organization.
It's such an amazingstory, one that he, he.
Did that personally, right.
And had that experience and thenthat you're able now to turn
it into an entire consultingand, business that you all run.
(02:20):
Um, how many advisorshave you all helped
over the course of theseOh gosh, great question.
So we've been, we'vebeen in business for
like five, six years.
By the way.
JPTD stands for John Peter,Ted, and like you said,
they call me DG or Dej.
Uh, we're not that creativein terms of branding Shelby,
but we, we, we collectivelyused to run a chunk of
the United States forAmeriprise, for, for decades.
(02:42):
And so, and we've beenfriends for 40 years each.
so over the last.
I'd say five years sincewe've been doing this, we've
probably done over 150 deals.
I would say 60% of our clientsare RIA 60, 65% of RIAs.
the other 20, 25% areprobably hybrids and a
small, small percentageare employee base folks.
(03:03):
Last year, I think wedid, uh, 49 deals closed.
Mm-hmm.
Interesting stat.
We just, 'cause we just gotour yearend numbers, 87%
of the clients that signwith us actually end up
doing, uh, a transition.
They close.
That's an incredible stat, andI think that's even up from
a few years ago and it waslike 80% back then, but 87%.
(03:25):
That means that they found a,a, a figure that they wanted,
they found a partner thatthey wanted, they saw the
value in it and, and movedCorrect, correct.
And the thing about usis like, is the way, the
best way to think about usis we are Jerry McGuire.
So if you like movies,uh, we represent.
The financial advisorto this world.
And for the mo for mostadvisors, this is new.
Yeah.
(03:45):
you know, a lot of advisorsthink back, at least I was
brought up in the world of twoand a half to three x recurring
revenue, where if you wantedto sell and you had to be out
of there in 12 to 18 months.
Now the world iscompletely different.
So it's very much of ajourney for most advisors.
'cause what they thinkthe world is in, in a lot
of cases is very, verydifferent than reality.
(04:06):
Talk about that gap.
What do you seeas reality today?
Then if there's a gap fromwhat advisors think it is.
let me give you some numbers.
I think the numbers willhelp as, as kind of a
headline into today.
So on a consistentbasis, we, first of all,
we see 20 deals a day.
Okay, so we have, we have rightnow, close to 200 new clients.
(04:27):
These are advisors.
Our average revenues sayfour to 7 million of, of,
of revenue, but our smallestadvisor is probably a million
of revenue, and our biggestis over a hundred million.
Um, now we do have a tuckingdivision, which is sub
million dollars of revenue.
And for those folks, I canguarantee you a fourex.
which we have prearrangeddeals with 108 buyers right
(04:50):
now, that we work with.
So what's funny about our, aboutour advisors is a couple things.
One is when we first startedthis, we thought our average age
client would be 70 years old.
Okay.
We thought 70, take a bunchof money, hit the beach
someplace, but our averageage client is actually 48.
(05:13):
Um, right.
Which means they get a 5,10, 15 year run on them.
So they are sell and stay.
They're sell and stay.
So we thought originally thatmost of our clients would come
on would be sell and leave.
I think we've had maybe outof our, you know, 150 some
odd deals, two, maybe threeclients wanted to leave
in in two or three years.
(05:34):
That being said, wehave buyers lined up.
For folks that just want toget out in a couple years.
But again, most ofour clients are young.
Um, part two is ouradvisors are in growth mode.
So they either have a historyof growth or really want to
grow, but sometimes they'vehit that ceiling of complexity
and they really don't knowwhat to do next in order
(05:55):
to double or triple theirbusiness without spending a
ton of money into the business.
and the third thing is, is,Every one of our clients are
not tire kickers, so they'renot doing this for their ego.
and they all passthe likability test.
And it's interesting islikability is a big, big deal
because, because if someone'sgonna spend 30, 40, $50 million
(06:17):
on you, they bet like you so.
right.
So you gotta put them aside.
So, so that's part one, parttwo, as I mentioned, we have
108 buyers right now in growing.
So buyers arecalling us every day, Mm-hmm.
buyers are all lookingfor something different.
So they structure theirdeals differently.
they're negotiating differently.
they have different multiples.
(06:37):
But what's interesting about ourbuyer list is, um, we have such
deep relationships with them.
We know whatthey're looking for.
Now we see we don'twanna waste their time.
and on the buyer side,on a consistent basis
is we are seeing four toseven x top line revenue,
or eight to 16 x ebitda.
(06:58):
And we could, we shouldprobably talk about the
definition of EBITDA in asec. But, but, and by the
way, on the four to seven.
Top line, we've, weeven have seen a couple
of eights recently.
and why size does matterin terms of getting
these higher numbers.
You know, how big youare is what you get.
there's a zillion othersmall things that make
up what a valuation is.
(07:19):
I definitely wannatalk about how can we
increase that valuation.
But what you basically justsaid is that there are gonna
be some size metrics whereyou're gonna get another
click in that valuation.
Is that fair?
the industry term is a turn.
So going from four tofive, that's a turn.
Going from five tofive and a half.
That's a half a turn.
Yes.
Okay.
I always have said clicks,so now I gotta update
(07:40):
my language to turn.
So right.
We're gonna getanother turn on there.
So beyond size, what arethe key characteristics
that influences that number?
Okay, lemme take a deepbreath on this one, Shelby.
'cause this is a it's a lot.
It's a lot.
again, size clearly matters.
So first of all, the way myworld works is top line is pre.
(08:03):
Payout rate, it is pre,It's true.
fee.
Yeah.
I call it true top line, right?
And a lot of advisors do notknow their true top line.
They know how much they'regetting from the firm, right?
Like let's say they're anLPL advisor or Ray J advisor
or Ameriprise advisor.
They know what they're.
Are getting kind of top line,but they're, they need to
calculate their true top line.
(08:24):
What are theirclients paying at the
So I, I I call itgross, gross, gross.
Yes.
so, so if you think aboutit, one of those firms that
you just mentioned, I'mnot gonna mention the name.
actually we had a client thatwas realized they was, they
were, it was costing them$2.1 million in association
fees, platform fees.
(08:44):
Yes, They had no ideawhat their top is.
So your gross, gross, gross isthat four to seven x is what I'm
talking about on your overall.
So, so let's go throughit a little bit.
So the number onething that buyers are
looking for is growth.
So you have a history of growth.
(09:04):
You wanna grow.
They don't want a companythat has a lifestyle
type of business.
They want you to have a desireand a fire in your ability
to wanna continue to grow.
And I'll tell you why that'simportant in a sec. do
you do financial planning?
Do you have 85 to 90% ofyour revenue being recurring?
do you run it like a business?
(09:24):
Versus running likea financial advisor.
And there's a difference, right?
So running like a businessmeans you have structure
and support and systemsin place, people in place.
So if you wanted to be inTahiti for six weeks, the
place still makes money, theclients is still serviced.
geography sometimes matters.
'cause what we wanna do iswhen we send you out to market,
(09:45):
we don't send you to 108people, we send you to five
that we think is a good fit.
Right.
'cause in a way we'relike matchmakers, and we
want to get a bidding war.
I wanna get three, four offersfor you where people are
fighting and clamoring over you.
that being said, 60% of ourclients actually take less
money 'cause it's a better fit.
and by the way, the fit's notjust for the advisor, it's
(10:07):
for the staff, it's for theG twos, it's for the clients,
it's gonna feel, right.
Right.
So we kinda help themthrough that process.
But, but one of the small littlevariables in geo, in, in, um, in
the fit is actually geography.
We had a, we had a, uh,firm in North Dakota.
that was a $2 milliontop line revenue firm.
I had six, companies, um, vyingfor them because they wanted
(10:29):
a presence in North Dakota.
here's a to close that geographyhole, I guess that they had.
Super interesting to thinkabout geography in that way.
I was thinking aboutgeography in, in terms of
like, how does that influenceyour ebitda and can your
EBITDA be somehow higher?
'cause you don't havehigh rank costs, but No, no, no.
It's, it's just we'repulling the gap.
(10:49):
Here's a little one for you.
It's a big deal.
So one of the questions weget asked all the time is,
what percent of your clientsare over 70 years old?
and then the second questionbehind that is always,
okay, what percent of themdo you have their kids as,
or grandkids as clients?
And the reason being isbecause the buyers, these
private equity firms orprivate equity backed firms.
(11:12):
Are spending stupidmoney on you, right?
Double or triple the marthat most people expect
double or triple the market.
and the only way in theworld they're gonna make
money is if you grow.
And here's the why, because,Three years from now, seven
years from now, most of thesefirms, most of these buyers
will have their own event.
Okay?
(11:32):
So one of the PE firmswill get bought by another
bigger PE firm, right?
And they're gonna get,and they're gonna sell for
double, triple, quadruplewhat they're paying you.
So, but the only way inthe world they're gonna do
it is if you are growing.
So, so it's harder foryou as an advisor to grow
if you have outflows.
So if you have a bunch ofclients over 70, I don't have
the kids and they're takingRMDs or, or the client passes
(11:55):
away and the kids take theirmoney and they go to another
broker dealer or another RIA.
It's harder to grow when you,when you hear the sucking
sound of money leaving.
so that's a big deal.
So anyway, Um, small intangiblethings that people never
think about, like some ofthe gotchas, but that those
are some of the bigger ones.
One of the ones.
I've been wondering abouttoo is around platform and
(12:17):
is that maybe just a functionof EBITDA or something else?
So, one of the things we'vehistorically have heard is
that will receive a highermultiple than a business that's
affiliated with a broker dealer.
What's your view on that today?
Is that actuallystill true or not?
Yeah, so the, our 108buyers, if they had a
magic wand, they wouldjust do deals with our aas.
(12:37):
It's, it's easier, Yeah.
you know, it's goes from Schwabto Schwab, fidelity to Fidelity.
You don't have to worryabout the broker dealer.
of paper to the clients,so that part of the
transition is simpler.
Super easy, right?
they, that's one of thefirst questions they always
ask us is are they anRIA, are they a hybrid?
Are they a true pd? but I'lltell you that no one's gonna
touch an advisor unless you have85 to 90% recurring revenue.
(13:01):
So whether you're RIA and orhybrid, or at least you won't
be getting the higher multiplesin that particular case.
the flight to RIA overthe last what decade or
so, has been massive.
And it's going to, it's gonnacontinue to be that way,
um, especially when they,when they see this world
of what the multiples are.
(13:21):
It was interesting.
I was doing some data analysisover the weekend about the
Commonwealth to LPL deal.
Right.
And what happened tothe advisors there.
but it's around a thirdor just over a third.
Maybe it's about 40% I thinkactually went RIA centric,
they are, they might have afriendly bd, many of them do,
but they have gone RIA centricas part of that, that exit.
(13:44):
exactly.
exactly.
It just, it just, it's just somuch easier and, and ease of
transition, ease of evaluation.
it's an easier way ofdoing it for the, both
the buyer and the seller,Well, let's do talk about
EBITDA and also these littlekind of micro things that can
impact evaluation, runningit like a real business.
Talk to me a little bit more.
(14:04):
Let's talk about some math here.
I'm gonna try andmake things simple.
so here's how you get to ebitda.
you take your gross, gross,gross, like we discussed, right?
then what you wanna do isyou wanna subtract out your
true operating expenses,your true fixed expenses.
So this is.
Staff in real estate andmarketing and technology
and insurance and blahblah, blah, right?
(14:25):
but we want your true opex.
this is all before you asthe advisor makes a dime, Yeah.
Don't, don't put yourself onsalary or anything like that.
When you take your opex fromyour gross, gross, gross, that's
called ebook, earnings beforeowner's compensation, EBOC,
(14:48):
to get to ebitda, which is ateight to 16 x multiple I told
you about, gonna need to paysomeone to run the business.
Let's say it's you, you'regonna probably take 30%.
Of your gross, gross, gross topay someone to run the business.
So if you're a milliondollar producer, take
$300,000 off of Eeb A andthat will get you to ebitda.
(15:13):
So it's, so I would say 85%of our buyers buy you based
off of e. Um, the other 20 doit off top line, which is so
much easier because I don'thave to argue about how much
money you spend, you know,taking people out for dinner.
Um, and then to give you someratios, a good ratios, you're
looking at your business.
an EBOC numbershould be 30 to 35%.
(15:37):
Of your gross,gross, gross, right?
In terms of expenses, an EBITDAnumber should be also be 30,
35% of your top, top line.
So if you're doing a milliondollars a year of, of gross,
gross, gross, and your, andyour EBITDA is like three
50, you're doing great.
Now, some peoplesay, I run it lean.
(16:00):
They do I I spend nothing.
I work outta my house andyou know, I, I just have my
computer and my telephone.
$2 billion business, and inmy cost to run it are 400 K.
The rest is going to, to me,So Shelby, that's a good
thing and a bad thing.
So it's a first of all, it'sa good thing if you're running
it lean and you're growingdouble digits a year on top
(16:23):
line revenue, you're a rockstar.
On the flip side, if you'rerunning it lean and you're
doing single digit growth orflat, or God forbid, going
backwards, they look at itas you're running a lifestyle
business and when they don'twanna buy lifestyle businesses.
So we so just take a look atwhat your operating expenses,
(16:45):
your EBITDA is off of.
Top line on, by theway, on the flip side,
some people run it fat.
We had a $6 million top linerevenue producer that had
a 58% operating expenses.
That ain't gonna work.
Yeah.
Yeah.
You know, it's justnot profitable.
Yeah, yeah.
I had a client recentlythat had just too much
(17:06):
staff, fundamentally, right?
Like business was originallylarger, not as much came over.
Staff was a little bit high.
We knew we were gonnahave to grow out of that, Right.
can.
You can make that trade off fora certain amount of time, but
you can't live like that for thelong term, both for yourself,
but especially for your exitWell, and what's interesting
about that is Going back to thebuyers, the buyers are gonna say
(17:26):
something to the effect of, HeyShelby, if I could free you up a
day, day and a half a week, whatwould you do with your time?
Right.
And, and the reason beingis 'cause they, they
have infrastructure.
Most of 'em haveinfrastructure 'cause they
want to help you grow.
So, for example, they'll takecompliance off your plate.
Imagine having no complianceto worry about, right?
(17:49):
Uh, they'll manage the moneyfor you if you want to, they
will do hr, they'll do billpay, they'll do sophisticated
digital based marketing.
they have CPA services,trust services, some of them.
So the buyers have suchinfrastructure that you may not
need all that overhead, okay?
When you really, whenyou start looking at it.
What about some ofthe small things?
(18:09):
You know, one of the things I'veheard from, you know, even like
a Matthew Jarvis and, and someof his podcasts, I think with
Ted is like even small thingslike having your books in order
can make a difference on your,on your, on your multiples.
Well, here's a great example.
We just, we just wentthrough this, so we had
a client just close.
it took three months longerbecause, eight years ago,
(18:30):
they had a partner as partof an operating agreement
who's no longer there.
They never closed outthe operating agreement.
And so this, this otheradvisor found out about the
sale, held the whole thing up.
All right, so we gottaclean up our paperwork.
We gotta clean up.
(18:51):
our, our numbers, right?
We gotta know our numbers,which is something so many
advisors don't actually know.
We have to know our numbersand we gotta, we gotta do the
work to clean our crap up.
Well, here's another one.
If you're in apartnership, right?
This, um, this goes backto the operating agreement.
If you're in a partnership,let's say you and I were
partners and I wantedto sell, and you didn't.
How do you make a decision?
(19:11):
Right, right.
Yeah.
Yeah.
I always think that thatgovernance is so important.
And is the governancebased on total votes?
Is it based on sizeof the businesses?
How are you gonna extract it?
Like we have to kindof plan some of that
as we go to stand up.
I work with a lot of folkswho are standing up and so
we talk about like, what'syour prenup, essentially?
'cause that's kind ofwhat, what they needed.
(19:34):
Exactly.
Exactly.
So, so also, let's say you havea G two in place, or you're
about to bring a G two in place.
Mm-hmm.
A lot of people don't havethe, um, expertise on how
to onboard somebody and whatto give up, what not to give
up, and how to train them up.
so that one little piece isa big deal for these buyers
(19:55):
because they're looking atit saying, Hey, you got this
expense, but they're notmaximizing their talents.
They're not, they'renot doing things to take
things off your plate.
And so getting some guidance onthat upfront is a big, big deal.
Well, and that brings upjust G two in general.
Right.
And we know there's such aG two problem often, but I
can think about some clientsthat I have and, and contacts
(20:16):
in the industry that I havewhere they don't have a G two.
They're, you know,into their seventies.
They don't have a G two one.
Obviously that's gonna hurttheir multiple in their exit.
But are the buyersprepared with G twos to
fill some of these gaps?
What does Sometimes.
Yeah, sometimesyes, sometimes no.
So as we talked about earlier,with the 4,000 different mini
(20:37):
things that make up valuation,having a G two is one of them.
Um, you have a G two in placethat's trained, that knows
your systems, that's, thatknows your clients, that
is an immense proposition.
But if you don't have a Gtwo, some of our buyers will
actually try to help you.
as you know, one of thebiggest issues in the industry
right now is getting youngerpeople into the industry.
(20:58):
It's a, it's abig, big challenge.
but a lot of the buyersout there are proactive,
looking to find.
Junior people that couldultimately help take,
take, take over matter.
Some of them will out,they'll actually go out there,
buy the juniors practice,recruit them in here and
give you the economics.
Interesting.
Wow.
(21:19):
Yeah.
So,buy the practice that'll give
that person a cash outlay.
Then they'll be ableto come in and serve correct,
larger practice.
correct.
And then.
then as they take it on,they're probably getting
some level of salary andthey're sort of staying the
sell and stay, so to speak.
They're the G two is takingover the business and staying
and getting more revenueThat's right.
(21:40):
And so it's, right.
So they'll crushit cash flow wise.
Right.
so, and by the way, on the,on the, you mentioned salary.
Sometimes it's a salary, mosttimes it's still a payout rate.
True.
we'll, we'll give you apayout rate ongoing to,
to service the business.
Mm-hmm.
Yeah.
What does that kind of selland stay look like these days?
(22:01):
Right?
Because there are, youknow, a lot of folks, you
said the average age ofyour seller is, is in their
forties, late forties.
what does it look like whenthey decide to sell and stay?
They're gonna getthe big multiple.
And then what doespayout rate look like?
Is it look like a wirehouse?
Great question.
So let's, let's talkabout, deal structure.
Oh, yeah.
Okay.
That'll tie right intowhat you're talking about.
(22:22):
So.
You could do one offour, you could sell your
business one of four ways.
One is you could do a full, afull sale, sell the whole thing
and decide if you wanna stayor decide if you want to go.
Another is you could sella majority, you could sell
51% plus, or you could sella minority, which is 49%.
Or you could do afractional sale.
In other words, I can, I'mgonna sell 20, 25% now and
(22:44):
live to fight another day.
but in all cases, the multiplesfor any of those four.
Are really the same,to be honest with you.
if you do a full sale,it's usually a W2 deal.
and I'll walk you through anexample of what a deal would
look like, but a W2 deal saysHere's how I'm getting paid
(23:05):
versus how I'm being treated.
So most people thinkof Shark Tank, right?
When this.
And they're gonna, they'resaying, oh my God, they're
gonna micromanage me.
They're gonna, it'slike when I'm a roo, I
was a rookie advisor.
Again, dials talked tohis appointment set,
appointment scene.
That's not the case at all.
The buyers don't have thetime, the capacity, or quite
frankly, the capabilityof micromanaging you.
(23:27):
They're gonna say, Shelby,here's a whole bunch of money
here, has a bunch of support.
Go get 'em, tiger.
They're gonna leave you aloneand that's what you want.
'cause they're buyingyou, they're buying
your, what you've built.
They don't wanna change it.
They want to enhance it.
anything less than, a fullsale, it's usually a 10 99 deal.
(23:48):
So if I sold 30%, the buyer willclaw back 30% of the revenue.
and you'll sometimes they'llpick up 30% of the expense.
Sometimes they won't.
Sometimes they'll sayYou're still responsible
for a hundred percent.
But let's walkthrough an example.
I, we just closed thedeal the other day.
It was, $4 million team.
we end up getting $31 million,so let's, let's call it 30
(24:10):
million to make my life easy.
Okay.
By the way, when I quotethat, that does not include
compensation and that doesnot include, um, a potential
retirement plan, whichI'll walk you through.
So, $30 million, they're gonnasay, Shelby, congratulations.
You you are now partof our organization.
We're gonna give you 70% of thatupfront, so we're gonna give
(24:31):
you $21 million upon signing.
I'm gonna go on vacation.
gonna have a like, like yours,Right.
By the way, and I'm not aCPA, but ask your CPA, but
the vast majority of this 90%plus is long-term cap gains.
And the reason, and thereason being is 'cause
you're selling goodwill.
How long that lasts, who knows?
(24:52):
But, but for right now,right now, time's good, with.
right?
Um, so I give you $21million up upfront.
You say, you say, I wannatake 5% in the buyer's stock.
I want take 40% in the buyer'sstock, or something in between.
And we negotiate that for you.
The rest of the $9 millionis made up based on this
thing called an earnout.
(25:13):
An earnout is based ontwo factors, usually,
one is revenue retention.
So if you are at 4 milliontoday, and let's say two years
from now, you're still at 4million, they're gonna give
you another 4.5 million bucks.
And then the last partis based on growth.
It's annual growth.
It's called cagr compoundannual growth rate.
(25:34):
The usual target is 10%.
So if you're growing 10% ayear on top line revenue, we
need you the last 4.5 million.
And these earnouts could be asshort as a year, they could be
as high as four or five years.
Just kinda dependson who the buyer is.
What we try to negotiatefor you is a pro rata deal.
So for example, if uh, yougrow 9% instead of 10%, you're
(25:56):
gonna get 90% of the bonus,um, versus an all or nothing.
Um, and then part two is,uh, we try to negotiate
a mulligan year for you.
Markets go bad, you losea big client, you can make
up the differential inthe last year of the deal.
It's kinda what we do.
So everything we just talkedabout is called consideration.
So this is what I'mbuying your practice for.
(26:17):
The upfront cash instock plus the earnouts.
The second part is thecomp, to your point earlier.
So if it's a W2 model,we've seen comp between 25%
payout rate and 40% payoutrate with no expenses.
Okay.
Not a salary payout rate.
(26:37):
So it just kind ofdepends who we talk to.
Matter of fact, we've,we've got a couple of firms
right now that are actuallygiving bonuses where you
could potentially get a 50%payout rate with no expenses.
I not bad, right?
Um.
and you've gotten the bigcheck on the upfront, right?
You've gotten the big checkfor selling your business,
And now you're stillgetting a nice payout along
the way for running it,And Shelby, we advise, we
(26:58):
don't want you tapping intothe 30 million that's yours.
You don't have tolive off of that.
Okay?
But again, these folksare helping you grow
by freeing you up.
you know, a lot of advisorthought they wanted to
retire in five years.
Like, I'm having fun now.
I may wanna do this for 10 or 15years because I don't have the
operational headaches anymore.
I'm not having to pushall the buttons anymore.
(27:19):
Correct.
I did it for a while, builtmy value, got my big check,
did my sale, and now I don'thave to do it, and I can just
do the parts I want to do.
I wanna see clients, Iwanna service clients
and take a vacation.
and then the last piece ofthis is some of the firms
out there will give you whatthey call a A successor plan.
And what that basically meansis when you actually decide
(27:41):
to retire for a period of upto five years, depending on
the buyer, um, you could do ajunior senior comp split with
your G two, up to say 50 50.
So if you're making amillion dollars a year.
When you retire, um, youcould make $500,000 a year,
50 50 split with your Gtwo for up to five years.
(28:03):
Now that's ordinary income'cause it's a comp split
versus long-term cap gains.
Mm-hmm.
It's extra money whileyou're on the beach.
And then that amount is notincluded in that four to
seven, four to eight x pieceI was telling you about.
Incredible.
It is an awesome, awesome timeto be a financial advisor.
It is.
(28:23):
we tell people you justneed to educate yourself.
and, and that'swhere we can help.
Yeah.
So you've got 87% of peoplewho start the process with
you are seeing it throughand going to a transaction.
But we also know there's alot of, you know, looky-loos
and who, people who wantto understand this, but
(28:43):
they're not ready yet.
How are you educatingthose folks?
we spend a tremendousamount of time upfront
trying to understand you.
it's kinda like Shelby, if youwere a financial advisor, my
wife and I came to you, you'dbe asking me what are my goals?
What are my objectives?
What are my history?
What's my risk tolerance?
Things like that, you know, allthose, all the right questions.
What we found is mostpeople have never done that.
With an advisor, youknow, what are your goals,
(29:06):
what are your objectives?
So that's what we do.
part of that is understandingyour financials.
So we go through the last threeyear p and ls, and we can, we
just have a lot of experienceand we can look at it in two
seconds and tell you whether ornot you have anything to sell.
And, and I can alsotell you what your
multiples are gonna be.
I, I can give you yourgoalpost, your range, and
then, If you are interestedin it, then we do a wishlist.
(29:29):
So this is a series of questionsthat we ask, which is, must have
deal killers, nice to have, oryou don't care, for example.
Um, how important isit to keep your brand?
Nice to have, must have.
I don't care.
how important is it for youto continue to manage money
if you're playing pm do youneed help with marketing?
Must have nice to have.
Do you need a G two?
(29:50):
Nice to have.
Must to have.
So we ask these 30, 40 questionsand what this helps us do is
narrow our buyer list fromthe 108 down to five to seven
based what you're doing.
Interesting enough, I brought upa couple times I wanna make sure
I get across before I forget.
A lot of advisors love toplay portfolio manager,
you know, they got 15screens in front of 'em.
(30:11):
And my, my, the advice I givemy clients is best in class.
Nobody can touchit, da da, da, da.
Um, and that's great.
I'm sure you do a great jobin comparison to the markets
and the indexes, but doyou know that most buyers
will hold that against you?
Hmm.
Because what they're gonnasay to you is, Shelby,
how much time a week areyou spending doing that?
(30:32):
And you're like, oh, I'mspend outta my 60 hours.
I'm spending 20 hours aweek looking at head and
shoulder charts or whatever,or going to chat GPT.
Um, and they're saying, ifyou took that time, let us
take over the money managementand if, and if you took that
time to go spend with your.
Getting deeper share, Waltwith your existing clients
or getting new clients orworking on developing your
(30:54):
staff, for example, howmuch more could you grow?
Because again, it goesback to our original thing
saying growth is everything.
Now, there are advisors thatlove, love, love, love, love
to play, pm and we have buyersthat will take that, but the
vast majority of them wouldrather have you let them manage
it and you go do your thing.
Yeah, they want youout there relationship
(31:15):
building and prospectingand meeting with clients.
The other reason I wouldwonder is, is there's a little
bit more compliance risk inthat too, and there can be
other economics that theycan, they can fulfill also.
let's talk about some,oh my gosh, I never
even thought about that.
That that will kill deals.
That's happened tous a couple times.
(31:36):
You mentioned compliance.
So we had a client, itwas a $64 million deal.
It was gonna close.
Um, I think in less thana month, guy walks in on a
Monday morning, sees an email.
It's from compliance.
Client complainedjustified or unjustified
'cause it was too early.
The buyer pulled the deal.
(31:57):
One, one complianceissue could crush you.
Yeah.
Especiallyone coming up at the wrong time.
This goes back to why,well, people say, well,
I could wait five years.
Well, you know, one complianceissue that next five years
could make you untouchable.
Mm-hmm.
Another one is health.
We had a, we had a clientthat, that it was a big deal,
(32:21):
like, like, like a hundredmillion dollar plus deal.
Worked on it forthree years with them.
Um, to get this deal done.
Clients get granted to close,goes into see as annual physical
stage four prostate cancer.
Entire deal gets pulled.
Yeah.
Heartbreaking, right?
(32:42):
Um, and so it's, it's thingslike that you don't think about,
you know, it's a market gonnakeep doing what it's doing.
Is the tax gonna stay the same?
We don't know.
What the buyers will dowhen we have a recession,
because most of them havenever been through it, right?
Last was what?
2008? 2009. And so do theytake the money and say, okay,
(33:05):
the multiples of our back aregonna drop and we're gonna
go to veterinarian clinics.
We just don't know.
Right.
It's such a good point.
I, and, and I'm reallyappreciative that you
brought up health.
I've had, I wanna saythree clients in the last
two years alone that.
Going down the path.
Going down the path aboutto make a move, do something
(33:25):
in their business thatwas gonna dramatically
change their business.
And either they, as the advisorgot sick or somebody in their
very close set of familycould be a parent, it might
have been a child, right?
Gets sick and ithalts Everything.
Everything.
And while you can think aboutlike, that's just, well, I'm
just gonna put it on hold.
(33:46):
You know, we don't know.
To your point, we don't knowwhat the buyer is gonna do.
We don't know what thedeals are gonna be.
know, if you are making amove from a captive broker
dealer to an independentbroker dealer and owning your
business today, those checksthat they're giving have never
been higher than they are Right.
now.
If you're selling your business.
Those checks have never beenhigher than they are right
now by some of the buyers thatyou have in your database.
(34:08):
Right?
So we just don't know.
Right.
Well, the, and then the otherthing that's happening is
we're seeing consolidation inthe industry from the buyers,
so that my list of 108 a yearfrom now could be 50 because
they keep buying each other.
And when thathappens, there's less.
There's less chance of us,getting that bidding war we
(34:29):
talked about, which is, isgonna depress the valuations.
So I gotta tell you, when I,when we started doing this five,
six years ago, I thought thisthing had a three year run.
I really did.
Now, now we're six yearsin, and depending on who you
talked to, I saw an articlethe other day said that we're
in the third inning of this.
Um, but then again, you hearpeople saying, this thing could
(34:51):
be done by the end of the year.
You just don't know.
So what we, consult withpeople and we, what we
tell 'em is pretend.
your business wasyour client, right?
And they had, and for themost part, the vast majority
of people's net net worthsare built in their business.
Right.
So what would youtell 'em to do?
(35:11):
Take some chips off thetable, diversify, you know,
take advantage of the marketswhile the markets are high.
What would you tell 'em to do?
Think about it in the, thepre Enron scenario, right?
You've got a client with alltheir, all their stock is
sitting in, in company stockand they're an Enron executive.
You would tell 'em to takesome chips off the table
and that would've been theideal advice at that moment.
(35:33):
And, and that's what we're,that's what we're seeing
in the market right now.
super, super important.
So let's, let's say though wehave a little bit more time.
I mean, obviously we believethat advisors, advisors need to
take agency over their careersand over their businesses.
You need to do itwhen you're healthy.
You need to do it before there'sa compliance change, et cetera.
(35:54):
But let's say we'replanning, we're planners
and we say we're gonna exit.
We're gonna sell ourbusiness in two years.
We're you know,an older advisor.
we're gonna try to get outand say five or 10, but
we're gonna sell in a couple.
What are some of the actionsthat I should take today so
that I get the highest multiple?
Assuming all else in theindustry, sort of stays
(36:14):
the same as it is today.
I, I would say havea mindset of growth.
Um, whether it's having anorganic marketing program, so
you do, you do webinars andyou do podcasts, and you do
social, but you need to beable to show growth on the
top line revenue and, andor show growth in ebitda.
(36:35):
Growth will getpeople's attention.
The second of all is,if I were to ask you a
question, are you runninglike a business or running
like a financial advisor?
So running like abusiness will get you more
attention in my world.
Versus running likea financial advisor.
So the world of selling Ashares and B shares and things
like that, and just annuitiesand insurance doesn't play.
(36:56):
it has to be recurring revenue.
and then the third thing ismake sure your point earlier,
Shelby, get your house in order.
Look at those oldoperating agreements.
Make sure they're tight.
Look at yourpartnership agreement.
If you have a partnership,make sure they're tight.
and essentially always, ofcourse, do the right thing
from a compliance standpoint.
'cause that way it'sgonna keep you healthy.
we've got a lot of, uh, a lotof advisors out there who,
(37:19):
senior advisor, mom or dadhave a child or a cousin or a
niece inside of the business?
They also need to exit.
They've got other childrenthat they need to think about
estate planning, et cetera with.
And so probably the right aaction is gonna be selling,
maybe it's gonna be a minoritystake of some sort to diversify
the ownership base and createsome, some dollars that they can
(37:42):
then hand over to other childrenat the time and, and sort of
equalize out their estate plan.
How do you all see that playing?
Because that's acommon scenario.
So the number one, one ofthe top things we hear from
situations like you're talkingabout is the son or daughter.
The G two says, dad, dad,mom, mom, don't sell it.
Thought you weregonna give it to me.
Right?
This is mine.
(38:03):
And.
other daughters and the othersons are like, Hey, wait a
minute, I'm not in the business.
Exactly.
And so it's hard to do that.
Number one plus number twois who's gonna give the
G two a $50 million loan?
Right.
and then they say, oh,let's structure it.
I'll pay you out.
I'll do a revenue share with youover the next 10, 15, 20 years.
(38:23):
Well, time value ofmoney, velocity of money.
You, you, would you rather havea $30 million right now or would
you rather have $30 millionover the next 15, 20 years?
So for the, for theentrepreneur, for the
founder, it's not agreat business decision.
but more importantly though isyou need to incent the G two.
whether it's the son orthe daughter, that says
if you sell, I get nothingexcept for maybe cashflow.
(38:46):
So there's a lot ofcreative things out there,
specifically with stockswaps that we negotiate
that will really incent theG two to grow this thing.
And if you do the math on it,that when the, every single
time we've had the G-tube lookat this thing, let's say they
were in their early, earlyto mid thirties, they look at
it and they say, oh my gosh.
I could totally do this.
(39:06):
And they, they were into it.
We, we developed this,um, Excel spreadsheet,
um, we call it The Clash.
Um, I dunno if you ever, ifyou're a music person, but
the Clash is, um, this hadone song, one of the, one
of their favorite songs was,should I stay or Should I Go?
Yeah.
And so what we do is we plug in.
The deal and then we plug in yousticking around doing nothing
and selling to the G two.
(39:27):
Um, and, and 90% of thetime it makes so much more
economic sense for you to sell.
Now get the big check now.
Long-term cap gain statusbecause, so you can, you can
tax arbitrage, have the earnouts and still get paid to,
to do it as long as you want.
Mm-hmm.
Yeah.
Super interesting.
(39:48):
How do you think the Gtwo feels about that?
well, when the, when the Gtwo emotionally starts looking
at it, it's, it's everysingle time they're like, I,
I don't want you to do this.
Yeah.
Yeah.
It's the what about me syndrome?
Yeah.
But then you look at thefounder, the, the advisor,
the G one, and when theystart looking at the numbers,
they said, this is so stupid.
(40:08):
I, I, there is no reason in theworld why I shouldn't do this.
Yeah, there's noway I can't do this.
And hey G two, how arewe gonna make this.
work with you?
And that's where you get intothose kind of swaps, as you were
mentioning, and the long-termopportunity for the G two.
Yeah.
And then the other thingyou mentioned is about the
other spouses that are notin the financial services
business, how you split,how you splitting all that.
(40:29):
The other thing too is a lotof times the G two doesn't have
the same skillset as the G one.
Uh, as mom and dad, they,maybe they can't market,
they can't bring in clients.
They need help.
So a lot of these other firms,these buyers out there when
they say, Hey, be part of theSchwab of or Fidelity custodial
referral program, or We haveAI based marketing now that can
(40:50):
drive leads to you getting newclients is really super hard.
Or here's the latesttechnology that we have.
All these thingsare put in place to.
The entire organization, Gone, G two, G three staff grow.
And when you're growing,you're doing great.
If you're not growing, you're,you're, you're, you're basically
not gonna ever, ever, evermeet expectations for yourself.
(41:13):
Yeah, and you can grow thatcashflow even if, even if the
business, to your point earlier,has been sold by the senior I.
or at least a good portionof it has you as a G two.
I think you have to decide,is my ego in owning the
practice fully or do I.
really just care about whereI'm gonna make more money?
Right.
And so this is, this is whywe close 87% because we have
(41:37):
this discussion upfront.
Yeah.
You know, we don'twanna waste your time.
Um, I said, look, we, andwe, and you know, if, if I
can get you between 30 and.
$45 million dollarswhere you could stay and
get an X, Y, Z payout.
And the G two's ecstaticbecause he's gonna get, he
or she's gonna get, somestock swap and some upside.
assuming you fell in love withthe firm, would you do the deal?
(41:59):
And if the answer is nah,maybe I'll think about it.
We're not working with you.
Yeah.
Such a good, sucha good reminder.
You, you are valuing them,they're valuing you and your
expertise and you're puttinga value on, Hey, my time is
worth something here too.
And I'm, I'm gonna vet you.
as a client also.
Love that.
It's definitely somethingwe do in our business too,
(42:21):
and, and it's hard to sayno, but sometimes we have to.
Exactly.
Well, that was, again, a lot of.
financial advisors that aretrying to find a successor Yeah.
struggle mightily, you know,is it, is it the right fit?
Do I have time to train them?
What do I train them on?
Systems, processes, et cetera.
It is, it's, it's really,really difficult if you've
never done it before.
(42:43):
Yeah,and, and what we're seeing is
we're seeing a lot of G twos onthe street because they were,
they, they thought they weregetting into a good situation
and it wasn't a good situation.
So again, you need someexpertise around that.
Um, and some guidance,some, some advice.
That's where you shouldspend your money if I was
an advisor, is findingsomeone to help you do that.
Yeah, super interesting.
(43:04):
We can definitely help withthe hiring and sort of the
onboarding of a G two, butyou're right, there's a
whole bunch of skillset thatwe gotta tackle with that G
two and you've gotta createthem in a way that not only
are they able to serviceyour existing business, but
they're able to go out andgrow the business for you too.
And that's a another skillset.
this was so great.
Thank you so muchfor the conversation.
(43:26):
Um, absolutely incrediblework that you guys are doing.
To our listeners, if you'vebeen sort of heads down and
building and you've neverpaused to kind of think about
what your firm is worth.
It sounds like now might be areally good time to do that.
JPTD would be happy to help.
And it's not just aboutretirement, it's about growth,
it's about optionality,it's about leverage.
It's about buildingsomething that lasts for
(43:47):
you and for your clients.
So hopefully today's episodebrought you some clarity.
Remember, it's not just apodcast, it's a playbook.
Hit subscribe.
Look forward to talkingwith you next time.
Thanks so much.
Advisors, I really wannaknow, what is your number?
No, really.
If you had to sellyour practice, what
would it be worth?
If you're like mostadvisors, you've built
something meaningful.
But the number, your valuation,it might surprise you.
Today's episode is for everyadvisor who has spent years
in the trenches and wantsto make sure that they don't
(00:28):
leave money on the tablewhen it's time to exit.
. My guest today is the guy thatadvisors call when they're
ready to sell and ready to win.
Scott DiGiammarino, or everyonecalls him DiG, or DG, is the
founder of JPTD Partners.
a boutique consulting firmthat has helped countless
RIAs, hybrids, and insuranceagents maximize their valuation
(00:51):
and find the right fit.
Buyer, think private equity mand a, the kind of deal
flow that most advisors.
Sort of know about butdon't really know about.
He's Let's get into it.
Shelby, first all,thank you for having me.
I'm excited to be here.
I get almost 40 years offinancial services experience.
So I was an advisorfor a number of years.
I got into leadership atthe Old American Express
(01:13):
Financial Advisors.
I basically ran theMid-Atlantic, for American
Express, which is now,like I said, Ameriprise.
I was in charge of about 200offices in 2,600 financial
advisors back in the day.
Left to start someentrepreneurial ventures
a couple years ago, butdid a bunch of board
work in the industry.
And then about five years ago,six years ago, uh, a really
good friend of mine named TedJenkin, who I hired out of
(01:35):
Boston College, when he was 22years old, called me and he was
a $2 million RAA in Atlanta.
And he is like, dude, Ijust sold my business for 15
million bucks and I got tostay for as long as I want.
I'm like, you gottabe kidding me.
and so, um, he sold to WarburgPincus and I called Warburg
and I said, is this true?
And they said it was, and it wasthe first time private equity
(01:57):
or private equity backed firmsare getting involved in buying
financial advisor practices.
And they asked me if, ifI'd be interested in helping
them grow and expand.
So that was kind of the genesisof our entire organization.
It's such an amazingstory, one that he, he.
Did that personally, right.
And had that experience and thenthat you're able now to turn
it into an entire consultingand, business that you all run.
(02:20):
Um, how many advisorshave you all helped
over the course of theseOh gosh, great question.
So we've been, we'vebeen in business for
like five, six years.
By the way.
JPTD stands for John Peter,Ted, and like you said,
they call me DG or Dej.
Uh, we're not that creativein terms of branding Shelby,
but we, we, we collectivelyused to run a chunk of
the United States forAmeriprise, for, for decades.
(02:42):
And so, and we've beenfriends for 40 years each.
so over the last.
I'd say five years sincewe've been doing this, we've
probably done over 150 deals.
I would say 60% of our clientsare RIA 60, 65% of RIAs.
the other 20, 25% areprobably hybrids and a
small, small percentageare employee base folks.
(03:03):
Last year, I think wedid, uh, 49 deals closed.
Mm-hmm.
Interesting stat.
We just, 'cause we just gotour yearend numbers, 87%
of the clients that signwith us actually end up
doing, uh, a transition.
They close.
That's an incredible stat, andI think that's even up from
a few years ago and it waslike 80% back then, but 87%.
(03:25):
That means that they found a,a, a figure that they wanted,
they found a partner thatthey wanted, they saw the
value in it and, and movedCorrect, correct.
And the thing about usis like, is the way, the
best way to think about usis we are Jerry McGuire.
So if you like movies,uh, we represent.
The financial advisorto this world.
And for the mo for mostadvisors, this is new.
Yeah.
(03:45):
you know, a lot of advisorsthink back, at least I was
brought up in the world of twoand a half to three x recurring
revenue, where if you wantedto sell and you had to be out
of there in 12 to 18 months.
Now the world iscompletely different.
So it's very much of ajourney for most advisors.
'cause what they thinkthe world is in, in a lot
of cases is very, verydifferent than reality.
(04:06):
Talk about that gap.
What do you seeas reality today?
Then if there's a gap fromwhat advisors think it is.
let me give you some numbers.
I think the numbers willhelp as, as kind of a
headline into today.
So on a consistentbasis, we, first of all,
we see 20 deals a day.
Okay, so we have, we have rightnow, close to 200 new clients.
(04:27):
These are advisors.
Our average revenues sayfour to 7 million of, of,
of revenue, but our smallestadvisor is probably a million
of revenue, and our biggestis over a hundred million.
Um, now we do have a tuckingdivision, which is sub
million dollars of revenue.
And for those folks, I canguarantee you a fourex.
which we have prearrangeddeals with 108 buyers right
(04:50):
now, that we work with.
So what's funny about our, aboutour advisors is a couple things.
One is when we first startedthis, we thought our average age
client would be 70 years old.
Okay.
We thought 70, take a bunchof money, hit the beach
someplace, but our averageage client is actually 48.
(05:13):
Um, right.
Which means they get a 5,10, 15 year run on them.
So they are sell and stay.
They're sell and stay.
So we thought originally thatmost of our clients would come
on would be sell and leave.
I think we've had maybe outof our, you know, 150 some
odd deals, two, maybe threeclients wanted to leave
in in two or three years.
(05:34):
That being said, wehave buyers lined up.
For folks that just want toget out in a couple years.
But again, most ofour clients are young.
Um, part two is ouradvisors are in growth mode.
So they either have a historyof growth or really want to
grow, but sometimes they'vehit that ceiling of complexity
and they really don't knowwhat to do next in order
(05:55):
to double or triple theirbusiness without spending a
ton of money into the business.
and the third thing is, is,Every one of our clients are
not tire kickers, so they'renot doing this for their ego.
and they all passthe likability test.
And it's interesting islikability is a big, big deal
because, because if someone'sgonna spend 30, 40, $50 million
(06:17):
on you, they bet like you so.
right.
So you gotta put them aside.
So, so that's part one, parttwo, as I mentioned, we have
108 buyers right now in growing.
So buyers arecalling us every day, Mm-hmm.
buyers are all lookingfor something different.
So they structure theirdeals differently.
they're negotiating differently.
they have different multiples.
(06:37):
But what's interesting about ourbuyer list is, um, we have such
deep relationships with them.
We know whatthey're looking for.
Now we see we don'twanna waste their time.
and on the buyer side,on a consistent basis
is we are seeing four toseven x top line revenue,
or eight to 16 x ebitda.
(06:58):
And we could, we shouldprobably talk about the
definition of EBITDA in asec. But, but, and by the
way, on the four to seven.
Top line, we've, weeven have seen a couple
of eights recently.
and why size does matterin terms of getting
these higher numbers.
You know, how big youare is what you get.
there's a zillion othersmall things that make
up what a valuation is.
(07:19):
I definitely wannatalk about how can we
increase that valuation.
But what you basically justsaid is that there are gonna
be some size metrics whereyou're gonna get another
click in that valuation.
Is that fair?
the industry term is a turn.
So going from four tofive, that's a turn.
Going from five tofive and a half.
That's a half a turn.
Yes.
Okay.
I always have said clicks,so now I gotta update
(07:40):
my language to turn.
So right.
We're gonna getanother turn on there.
So beyond size, what arethe key characteristics
that influences that number?
Okay, lemme take a deepbreath on this one, Shelby.
'cause this is a it's a lot.
It's a lot.
again, size clearly matters.
So first of all, the way myworld works is top line is pre.
(08:03):
Payout rate, it is pre,It's true.
fee.
Yeah.
I call it true top line, right?
And a lot of advisors do notknow their true top line.
They know how much they'regetting from the firm, right?
Like let's say they're anLPL advisor or Ray J advisor
or Ameriprise advisor.
They know what they're.
Are getting kind of top line,but they're, they need to
calculate their true top line.
(08:24):
What are theirclients paying at the
So I, I I call itgross, gross, gross.
Yes.
so, so if you think aboutit, one of those firms that
you just mentioned, I'mnot gonna mention the name.
actually we had a client thatwas realized they was, they
were, it was costing them$2.1 million in association
fees, platform fees.
(08:44):
Yes, They had no ideawhat their top is.
So your gross, gross, gross isthat four to seven x is what I'm
talking about on your overall.
So, so let's go throughit a little bit.
So the number onething that buyers are
looking for is growth.
So you have a history of growth.
(09:04):
You wanna grow.
They don't want a companythat has a lifestyle
type of business.
They want you to have a desireand a fire in your ability
to wanna continue to grow.
And I'll tell you why that'simportant in a sec. do
you do financial planning?
Do you have 85 to 90% ofyour revenue being recurring?
do you run it like a business?
(09:24):
Versus running likea financial advisor.
And there's a difference, right?
So running like a businessmeans you have structure
and support and systemsin place, people in place.
So if you wanted to be inTahiti for six weeks, the
place still makes money, theclients is still serviced.
geography sometimes matters.
'cause what we wanna do iswhen we send you out to market,
(09:45):
we don't send you to 108people, we send you to five
that we think is a good fit.
Right.
'cause in a way we'relike matchmakers, and we
want to get a bidding war.
I wanna get three, four offersfor you where people are
fighting and clamoring over you.
that being said, 60% of ourclients actually take less
money 'cause it's a better fit.
and by the way, the fit's notjust for the advisor, it's
(10:07):
for the staff, it's for theG twos, it's for the clients,
it's gonna feel, right.
Right.
So we kinda help themthrough that process.
But, but one of the small littlevariables in geo, in, in, um, in
the fit is actually geography.
We had a, we had a, uh,firm in North Dakota.
that was a $2 milliontop line revenue firm.
I had six, companies, um, vyingfor them because they wanted
(10:29):
a presence in North Dakota.
here's a to close that geographyhole, I guess that they had.
Super interesting to thinkabout geography in that way.
I was thinking aboutgeography in, in terms of
like, how does that influenceyour ebitda and can your
EBITDA be somehow higher?
'cause you don't havehigh rank costs, but No, no, no.
It's, it's just we'repulling the gap.
(10:49):
Here's a little one for you.
It's a big deal.
So one of the questions weget asked all the time is,
what percent of your clientsare over 70 years old?
and then the second questionbehind that is always,
okay, what percent of themdo you have their kids as,
or grandkids as clients?
And the reason being isbecause the buyers, these
private equity firms orprivate equity backed firms.
(11:12):
Are spending stupidmoney on you, right?
Double or triple the marthat most people expect
double or triple the market.
and the only way in theworld they're gonna make
money is if you grow.
And here's the why, because,Three years from now, seven
years from now, most of thesefirms, most of these buyers
will have their own event.
Okay?
(11:32):
So one of the PE firmswill get bought by another
bigger PE firm, right?
And they're gonna get,and they're gonna sell for
double, triple, quadruplewhat they're paying you.
So, but the only way inthe world they're gonna do
it is if you are growing.
So, so it's harder foryou as an advisor to grow
if you have outflows.
So if you have a bunch ofclients over 70, I don't have
the kids and they're takingRMDs or, or the client passes
(11:55):
away and the kids take theirmoney and they go to another
broker dealer or another RIA.
It's harder to grow when you,when you hear the sucking
sound of money leaving.
so that's a big deal.
So anyway, Um, small intangiblethings that people never
think about, like some ofthe gotchas, but that those
are some of the bigger ones.
One of the ones.
I've been wondering abouttoo is around platform and
(12:17):
is that maybe just a functionof EBITDA or something else?
So, one of the things we'vehistorically have heard is
that will receive a highermultiple than a business that's
affiliated with a broker dealer.
What's your view on that today?
Is that actuallystill true or not?
Yeah, so the, our 108buyers, if they had a
magic wand, they wouldjust do deals with our aas.
(12:37):
It's, it's easier, Yeah.
you know, it's goes from Schwabto Schwab, fidelity to Fidelity.
You don't have to worryabout the broker dealer.
of paper to the clients,so that part of the
transition is simpler.
Super easy, right?
they, that's one of thefirst questions they always
ask us is are they anRIA, are they a hybrid?
Are they a true pd? but I'lltell you that no one's gonna
touch an advisor unless you have85 to 90% recurring revenue.
(13:01):
So whether you're RIA and orhybrid, or at least you won't
be getting the higher multiplesin that particular case.
the flight to RIA overthe last what decade or
so, has been massive.
And it's going to, it's gonnacontinue to be that way,
um, especially when they,when they see this world
of what the multiples are.
(13:21):
It was interesting.
I was doing some data analysisover the weekend about the
Commonwealth to LPL deal.
Right.
And what happened tothe advisors there.
but it's around a thirdor just over a third.
Maybe it's about 40% I thinkactually went RIA centric,
they are, they might have afriendly bd, many of them do,
but they have gone RIA centricas part of that, that exit.
(13:44):
exactly.
exactly.
It just, it just, it's just somuch easier and, and ease of
transition, ease of evaluation.
it's an easier way ofdoing it for the, both
the buyer and the seller,Well, let's do talk about
EBITDA and also these littlekind of micro things that can
impact evaluation, runningit like a real business.
Talk to me a little bit more.
(14:04):
Let's talk about some math here.
I'm gonna try andmake things simple.
so here's how you get to ebitda.
you take your gross, gross,gross, like we discussed, right?
then what you wanna do isyou wanna subtract out your
true operating expenses,your true fixed expenses.
So this is.
Staff in real estate andmarketing and technology
and insurance and blahblah, blah, right?
(14:25):
but we want your true opex.
this is all before you asthe advisor makes a dime, Yeah.
Don't, don't put yourself onsalary or anything like that.
When you take your opex fromyour gross, gross, gross, that's
called ebook, earnings beforeowner's compensation, EBOC,
(14:48):
to get to ebitda, which is ateight to 16 x multiple I told
you about, gonna need to paysomeone to run the business.
Let's say it's you, you'regonna probably take 30%.
Of your gross, gross, gross topay someone to run the business.
So if you're a milliondollar producer, take
$300,000 off of Eeb A andthat will get you to ebitda.
(15:13):
So it's, so I would say 85%of our buyers buy you based
off of e. Um, the other 20 doit off top line, which is so
much easier because I don'thave to argue about how much
money you spend, you know,taking people out for dinner.
Um, and then to give you someratios, a good ratios, you're
looking at your business.
an EBOC numbershould be 30 to 35%.
(15:37):
Of your gross,gross, gross, right?
In terms of expenses, an EBITDAnumber should be also be 30,
35% of your top, top line.
So if you're doing a milliondollars a year of, of gross,
gross, gross, and your, andyour EBITDA is like three
50, you're doing great.
Now, some peoplesay, I run it lean.
(16:00):
They do I I spend nothing.
I work outta my house andyou know, I, I just have my
computer and my telephone.
$2 billion business, and inmy cost to run it are 400 K.
The rest is going to, to me,So Shelby, that's a good
thing and a bad thing.
So it's a first of all, it'sa good thing if you're running
it lean and you're growingdouble digits a year on top
(16:23):
line revenue, you're a rockstar.
On the flip side, if you'rerunning it lean and you're
doing single digit growth orflat, or God forbid, going
backwards, they look at itas you're running a lifestyle
business and when they don'twanna buy lifestyle businesses.
So we so just take a look atwhat your operating expenses,
(16:45):
your EBITDA is off of.
Top line on, by theway, on the flip side,
some people run it fat.
We had a $6 million top linerevenue producer that had
a 58% operating expenses.
That ain't gonna work.
Yeah.
Yeah.
You know, it's justnot profitable.
Yeah, yeah.
I had a client recentlythat had just too much
(17:06):
staff, fundamentally, right?
Like business was originallylarger, not as much came over.
Staff was a little bit high.
We knew we were gonnahave to grow out of that, Right.
can.
You can make that trade off fora certain amount of time, but
you can't live like that for thelong term, both for yourself,
but especially for your exitWell, and what's interesting
about that is Going back to thebuyers, the buyers are gonna say
(17:26):
something to the effect of, HeyShelby, if I could free you up a
day, day and a half a week, whatwould you do with your time?
Right.
And, and the reason beingis 'cause they, they
have infrastructure.
Most of 'em haveinfrastructure 'cause they
want to help you grow.
So, for example, they'll takecompliance off your plate.
Imagine having no complianceto worry about, right?
(17:49):
Uh, they'll manage the moneyfor you if you want to, they
will do hr, they'll do billpay, they'll do sophisticated
digital based marketing.
they have CPA services,trust services, some of them.
So the buyers have suchinfrastructure that you may not
need all that overhead, okay?
When you really, whenyou start looking at it.
What about some ofthe small things?
(18:09):
You know, one of the things I'veheard from, you know, even like
a Matthew Jarvis and, and someof his podcasts, I think with
Ted is like even small thingslike having your books in order
can make a difference on your,on your, on your multiples.
Well, here's a great example.
We just, we just wentthrough this, so we had
a client just close.
it took three months longerbecause, eight years ago,
(18:30):
they had a partner as partof an operating agreement
who's no longer there.
They never closed outthe operating agreement.
And so this, this otheradvisor found out about the
sale, held the whole thing up.
All right, so we gottaclean up our paperwork.
We gotta clean up.
(18:51):
our, our numbers, right?
We gotta know our numbers,which is something so many
advisors don't actually know.
We have to know our numbersand we gotta, we gotta do the
work to clean our crap up.
Well, here's another one.
If you're in apartnership, right?
This, um, this goes backto the operating agreement.
If you're in a partnership,let's say you and I were
partners and I wantedto sell, and you didn't.
How do you make a decision?
(19:11):
Right, right.
Yeah.
Yeah.
I always think that thatgovernance is so important.
And is the governancebased on total votes?
Is it based on sizeof the businesses?
How are you gonna extract it?
Like we have to kindof plan some of that
as we go to stand up.
I work with a lot of folkswho are standing up and so
we talk about like, what'syour prenup, essentially?
'cause that's kind ofwhat, what they needed.
(19:34):
Exactly.
Exactly.
So, so also, let's say you havea G two in place, or you're
about to bring a G two in place.
Mm-hmm.
A lot of people don't havethe, um, expertise on how
to onboard somebody and whatto give up, what not to give
up, and how to train them up.
so that one little piece isa big deal for these buyers
(19:55):
because they're looking atit saying, Hey, you got this
expense, but they're notmaximizing their talents.
They're not, they'renot doing things to take
things off your plate.
And so getting some guidance onthat upfront is a big, big deal.
Well, and that brings upjust G two in general.
Right.
And we know there's such aG two problem often, but I
can think about some clientsthat I have and, and contacts
(20:16):
in the industry that I havewhere they don't have a G two.
They're, you know,into their seventies.
They don't have a G two one.
Obviously that's gonna hurttheir multiple in their exit.
But are the buyersprepared with G twos to
fill some of these gaps?
What does Sometimes.
Yeah, sometimesyes, sometimes no.
So as we talked about earlier,with the 4,000 different mini
(20:37):
things that make up valuation,having a G two is one of them.
Um, you have a G two in placethat's trained, that knows
your systems, that's, thatknows your clients, that
is an immense proposition.
But if you don't have a Gtwo, some of our buyers will
actually try to help you.
as you know, one of thebiggest issues in the industry
right now is getting youngerpeople into the industry.
(20:58):
It's a, it's abig, big challenge.
but a lot of the buyersout there are proactive,
looking to find.
Junior people that couldultimately help take,
take, take over matter.
Some of them will out,they'll actually go out there,
buy the juniors practice,recruit them in here and
give you the economics.
Interesting.
Wow.
(21:19):
Yeah.
So,buy the practice that'll give
that person a cash outlay.
Then they'll be ableto come in and serve correct,
larger practice.
correct.
And then.
then as they take it on,they're probably getting
some level of salary andthey're sort of staying the
sell and stay, so to speak.
They're the G two is takingover the business and staying
and getting more revenueThat's right.
(21:40):
And so it's, right.
So they'll crushit cash flow wise.
Right.
so, and by the way, on the,on the, you mentioned salary.
Sometimes it's a salary, mosttimes it's still a payout rate.
True.
we'll, we'll give you apayout rate ongoing to,
to service the business.
Mm-hmm.
Yeah.
What does that kind of selland stay look like these days?
(22:01):
Right?
Because there are, youknow, a lot of folks, you
said the average age ofyour seller is, is in their
forties, late forties.
what does it look like whenthey decide to sell and stay?
They're gonna getthe big multiple.
And then what doespayout rate look like?
Is it look like a wirehouse?
Great question.
So let's, let's talkabout, deal structure.
Oh, yeah.
Okay.
That'll tie right intowhat you're talking about.
(22:22):
So.
You could do one offour, you could sell your
business one of four ways.
One is you could do a full, afull sale, sell the whole thing
and decide if you wanna stayor decide if you want to go.
Another is you could sella majority, you could sell
51% plus, or you could sella minority, which is 49%.
Or you could do afractional sale.
In other words, I can, I'mgonna sell 20, 25% now and
(22:44):
live to fight another day.
but in all cases, the multiplesfor any of those four.
Are really the same,to be honest with you.
if you do a full sale,it's usually a W2 deal.
and I'll walk you through anexample of what a deal would
look like, but a W2 deal saysHere's how I'm getting paid
(23:05):
versus how I'm being treated.
So most people thinkof Shark Tank, right?
When this.
And they're gonna, they'resaying, oh my God, they're
gonna micromanage me.
They're gonna, it'slike when I'm a roo, I
was a rookie advisor.
Again, dials talked tohis appointment set,
appointment scene.
That's not the case at all.
The buyers don't have thetime, the capacity, or quite
frankly, the capabilityof micromanaging you.
(23:27):
They're gonna say, Shelby,here's a whole bunch of money
here, has a bunch of support.
Go get 'em, tiger.
They're gonna leave you aloneand that's what you want.
'cause they're buyingyou, they're buying
your, what you've built.
They don't wanna change it.
They want to enhance it.
anything less than, a fullsale, it's usually a 10 99 deal.
(23:48):
So if I sold 30%, the buyer willclaw back 30% of the revenue.
and you'll sometimes they'llpick up 30% of the expense.
Sometimes they won't.
Sometimes they'll sayYou're still responsible
for a hundred percent.
But let's walkthrough an example.
I, we just closed thedeal the other day.
It was, $4 million team.
we end up getting $31 million,so let's, let's call it 30
(24:10):
million to make my life easy.
Okay.
By the way, when I quotethat, that does not include
compensation and that doesnot include, um, a potential
retirement plan, whichI'll walk you through.
So, $30 million, they're gonnasay, Shelby, congratulations.
You you are now partof our organization.
We're gonna give you 70% of thatupfront, so we're gonna give
(24:31):
you $21 million upon signing.
I'm gonna go on vacation.
gonna have a like, like yours,Right.
By the way, and I'm not aCPA, but ask your CPA, but
the vast majority of this 90%plus is long-term cap gains.
And the reason, and thereason being is 'cause
you're selling goodwill.
How long that lasts, who knows?
(24:52):
But, but for right now,right now, time's good, with.
right?
Um, so I give you $21million up upfront.
You say, you say, I wannatake 5% in the buyer's stock.
I want take 40% in the buyer'sstock, or something in between.
And we negotiate that for you.
The rest of the $9 millionis made up based on this
thing called an earnout.
(25:13):
An earnout is based ontwo factors, usually,
one is revenue retention.
So if you are at 4 milliontoday, and let's say two years
from now, you're still at 4million, they're gonna give
you another 4.5 million bucks.
And then the last partis based on growth.
It's annual growth.
It's called cagr compoundannual growth rate.
(25:34):
The usual target is 10%.
So if you're growing 10% ayear on top line revenue, we
need you the last 4.5 million.
And these earnouts could be asshort as a year, they could be
as high as four or five years.
Just kinda dependson who the buyer is.
What we try to negotiatefor you is a pro rata deal.
So for example, if uh, yougrow 9% instead of 10%, you're
(25:56):
gonna get 90% of the bonus,um, versus an all or nothing.
Um, and then part two is,uh, we try to negotiate
a mulligan year for you.
Markets go bad, you losea big client, you can make
up the differential inthe last year of the deal.
It's kinda what we do.
So everything we just talkedabout is called consideration.
So this is what I'mbuying your practice for.
(26:17):
The upfront cash instock plus the earnouts.
The second part is thecomp, to your point earlier.
So if it's a W2 model,we've seen comp between 25%
payout rate and 40% payoutrate with no expenses.
Okay.
Not a salary payout rate.
(26:37):
So it just kind ofdepends who we talk to.
Matter of fact, we've,we've got a couple of firms
right now that are actuallygiving bonuses where you
could potentially get a 50%payout rate with no expenses.
I not bad, right?
Um.
and you've gotten the bigcheck on the upfront, right?
You've gotten the big checkfor selling your business,
And now you're stillgetting a nice payout along
the way for running it,And Shelby, we advise, we
(26:58):
don't want you tapping intothe 30 million that's yours.
You don't have tolive off of that.
Okay?
But again, these folksare helping you grow
by freeing you up.
you know, a lot of advisorthought they wanted to
retire in five years.
Like, I'm having fun now.
I may wanna do this for 10 or 15years because I don't have the
operational headaches anymore.
I'm not having to pushall the buttons anymore.
(27:19):
Correct.
I did it for a while, builtmy value, got my big check,
did my sale, and now I don'thave to do it, and I can just
do the parts I want to do.
I wanna see clients, Iwanna service clients
and take a vacation.
and then the last piece ofthis is some of the firms
out there will give you whatthey call a A successor plan.
And what that basically meansis when you actually decide
(27:41):
to retire for a period of upto five years, depending on
the buyer, um, you could do ajunior senior comp split with
your G two, up to say 50 50.
So if you're making amillion dollars a year.
When you retire, um, youcould make $500,000 a year,
50 50 split with your Gtwo for up to five years.
(28:03):
Now that's ordinary income'cause it's a comp split
versus long-term cap gains.
Mm-hmm.
It's extra money whileyou're on the beach.
And then that amount is notincluded in that four to
seven, four to eight x pieceI was telling you about.
Incredible.
It is an awesome, awesome timeto be a financial advisor.
It is.
(28:23):
we tell people you justneed to educate yourself.
and, and that'swhere we can help.
Yeah.
So you've got 87% of peoplewho start the process with
you are seeing it throughand going to a transaction.
But we also know there's alot of, you know, looky-loos
and who, people who wantto understand this, but
(28:43):
they're not ready yet.
How are you educatingthose folks?
we spend a tremendousamount of time upfront
trying to understand you.
it's kinda like Shelby, if youwere a financial advisor, my
wife and I came to you, you'dbe asking me what are my goals?
What are my objectives?
What are my history?
What's my risk tolerance?
Things like that, you know, allthose, all the right questions.
What we found is mostpeople have never done that.
With an advisor, youknow, what are your goals,
(29:06):
what are your objectives?
So that's what we do.
part of that is understandingyour financials.
So we go through the last threeyear p and ls, and we can, we
just have a lot of experienceand we can look at it in two
seconds and tell you whether ornot you have anything to sell.
And, and I can alsotell you what your
multiples are gonna be.
I, I can give you yourgoalpost, your range, and
then, If you are interestedin it, then we do a wishlist.
(29:29):
So this is a series of questionsthat we ask, which is, must have
deal killers, nice to have, oryou don't care, for example.
Um, how important isit to keep your brand?
Nice to have, must have.
I don't care.
how important is it for youto continue to manage money
if you're playing pm do youneed help with marketing?
Must have nice to have.
Do you need a G two?
(29:50):
Nice to have.
Must to have.
So we ask these 30, 40 questionsand what this helps us do is
narrow our buyer list fromthe 108 down to five to seven
based what you're doing.
Interesting enough, I brought upa couple times I wanna make sure
I get across before I forget.
A lot of advisors love toplay portfolio manager,
you know, they got 15screens in front of 'em.
(30:11):
And my, my, the advice I givemy clients is best in class.
Nobody can touchit, da da, da, da.
Um, and that's great.
I'm sure you do a great jobin comparison to the markets
and the indexes, but doyou know that most buyers
will hold that against you?
Hmm.
Because what they're gonnasay to you is, Shelby,
how much time a week areyou spending doing that?
(30:32):
And you're like, oh, I'mspend outta my 60 hours.
I'm spending 20 hours aweek looking at head and
shoulder charts or whatever,or going to chat GPT.
Um, and they're saying, ifyou took that time, let us
take over the money managementand if, and if you took that
time to go spend with your.
Getting deeper share, Waltwith your existing clients
or getting new clients orworking on developing your
(30:54):
staff, for example, howmuch more could you grow?
Because again, it goesback to our original thing
saying growth is everything.
Now, there are advisors thatlove, love, love, love, love
to play, pm and we have buyersthat will take that, but the
vast majority of them wouldrather have you let them manage
it and you go do your thing.
Yeah, they want youout there relationship
(31:15):
building and prospectingand meeting with clients.
The other reason I wouldwonder is, is there's a little
bit more compliance risk inthat too, and there can be
other economics that theycan, they can fulfill also.
let's talk about some,oh my gosh, I never
even thought about that.
That that will kill deals.
That's happened tous a couple times.
(31:36):
You mentioned compliance.
So we had a client, itwas a $64 million deal.
It was gonna close.
Um, I think in less thana month, guy walks in on a
Monday morning, sees an email.
It's from compliance.
Client complainedjustified or unjustified
'cause it was too early.
The buyer pulled the deal.
(31:57):
One, one complianceissue could crush you.
Yeah.
Especiallyone coming up at the wrong time.
This goes back to why,well, people say, well,
I could wait five years.
Well, you know, one complianceissue that next five years
could make you untouchable.
Mm-hmm.
Another one is health.
We had a, we had a clientthat, that it was a big deal,
(32:21):
like, like, like a hundredmillion dollar plus deal.
Worked on it forthree years with them.
Um, to get this deal done.
Clients get granted to close,goes into see as annual physical
stage four prostate cancer.
Entire deal gets pulled.
Yeah.
Heartbreaking, right?
(32:42):
Um, and so it's, it's thingslike that you don't think about,
you know, it's a market gonnakeep doing what it's doing.
Is the tax gonna stay the same?
We don't know.
What the buyers will dowhen we have a recession,
because most of them havenever been through it, right?
Last was what?
2008? 2009. And so do theytake the money and say, okay,
(33:05):
the multiples of our back aregonna drop and we're gonna
go to veterinarian clinics.
We just don't know.
Right.
It's such a good point.
I, and, and I'm reallyappreciative that you
brought up health.
I've had, I wanna saythree clients in the last
two years alone that.
Going down the path.
Going down the path aboutto make a move, do something
(33:25):
in their business thatwas gonna dramatically
change their business.
And either they, as the advisorgot sick or somebody in their
very close set of familycould be a parent, it might
have been a child, right?
Gets sick and ithalts Everything.
Everything.
And while you can think aboutlike, that's just, well, I'm
just gonna put it on hold.
(33:46):
You know, we don't know.
To your point, we don't knowwhat the buyer is gonna do.
We don't know what thedeals are gonna be.
know, if you are making amove from a captive broker
dealer to an independentbroker dealer and owning your
business today, those checksthat they're giving have never
been higher than they are Right.
now.
If you're selling your business.
Those checks have never beenhigher than they are right
now by some of the buyers thatyou have in your database.
(34:08):
Right?
So we just don't know.
Right.
Well, the, and then the otherthing that's happening is
we're seeing consolidation inthe industry from the buyers,
so that my list of 108 a yearfrom now could be 50 because
they keep buying each other.
And when thathappens, there's less.
There's less chance of us,getting that bidding war we
(34:29):
talked about, which is, isgonna depress the valuations.
So I gotta tell you, when I,when we started doing this five,
six years ago, I thought thisthing had a three year run.
I really did.
Now, now we're six yearsin, and depending on who you
talked to, I saw an articlethe other day said that we're
in the third inning of this.
Um, but then again, you hearpeople saying, this thing could
(34:51):
be done by the end of the year.
You just don't know.
So what we, consult withpeople and we, what we
tell 'em is pretend.
your business wasyour client, right?
And they had, and for themost part, the vast majority
of people's net net worthsare built in their business.
Right.
So what would youtell 'em to do?
(35:11):
Take some chips off thetable, diversify, you know,
take advantage of the marketswhile the markets are high.
What would you tell 'em to do?
Think about it in the, thepre Enron scenario, right?
You've got a client with alltheir, all their stock is
sitting in, in company stockand they're an Enron executive.
You would tell 'em to takesome chips off the table
and that would've been theideal advice at that moment.
(35:33):
And, and that's what we're,that's what we're seeing
in the market right now.
super, super important.
So let's, let's say though wehave a little bit more time.
I mean, obviously we believethat advisors, advisors need to
take agency over their careersand over their businesses.
You need to do itwhen you're healthy.
You need to do it before there'sa compliance change, et cetera.
(35:54):
But let's say we'replanning, we're planners
and we say we're gonna exit.
We're gonna sell ourbusiness in two years.
We're you know,an older advisor.
we're gonna try to get outand say five or 10, but
we're gonna sell in a couple.
What are some of the actionsthat I should take today so
that I get the highest multiple?
Assuming all else in theindustry, sort of stays
(36:14):
the same as it is today.
I, I would say havea mindset of growth.
Um, whether it's having anorganic marketing program, so
you do, you do webinars andyou do podcasts, and you do
social, but you need to beable to show growth on the
top line revenue and, andor show growth in ebitda.
(36:35):
Growth will getpeople's attention.
The second of all is,if I were to ask you a
question, are you runninglike a business or running
like a financial advisor?
So running like abusiness will get you more
attention in my world.
Versus running likea financial advisor.
So the world of selling Ashares and B shares and things
like that, and just annuitiesand insurance doesn't play.
(36:56):
it has to be recurring revenue.
and then the third thing ismake sure your point earlier,
Shelby, get your house in order.
Look at those oldoperating agreements.
Make sure they're tight.
Look at yourpartnership agreement.
If you have a partnership,make sure they're tight.
and essentially always, ofcourse, do the right thing
from a compliance standpoint.
'cause that way it'sgonna keep you healthy.
we've got a lot of, uh, a lotof advisors out there who,
(37:19):
senior advisor, mom or dadhave a child or a cousin or a
niece inside of the business?
They also need to exit.
They've got other childrenthat they need to think about
estate planning, et cetera with.
And so probably the right aaction is gonna be selling,
maybe it's gonna be a minoritystake of some sort to diversify
the ownership base and createsome, some dollars that they can
(37:42):
then hand over to other childrenat the time and, and sort of
equalize out their estate plan.
How do you all see that playing?
Because that's acommon scenario.
So the number one, one ofthe top things we hear from
situations like you're talkingabout is the son or daughter.
The G two says, dad, dad,mom, mom, don't sell it.
Thought you weregonna give it to me.
Right?
This is mine.
(38:03):
And.
other daughters and the othersons are like, Hey, wait a
minute, I'm not in the business.
Exactly.
And so it's hard to do that.
Number one plus number twois who's gonna give the
G two a $50 million loan?
Right.
and then they say, oh,let's structure it.
I'll pay you out.
I'll do a revenue share with youover the next 10, 15, 20 years.
(38:23):
Well, time value ofmoney, velocity of money.
You, you, would you rather havea $30 million right now or would
you rather have $30 millionover the next 15, 20 years?
So for the, for theentrepreneur, for the
founder, it's not agreat business decision.
but more importantly though isyou need to incent the G two.
whether it's the son orthe daughter, that says
if you sell, I get nothingexcept for maybe cashflow.
(38:46):
So there's a lot ofcreative things out there,
specifically with stockswaps that we negotiate
that will really incent theG two to grow this thing.
And if you do the math on it,that when the, every single
time we've had the G-tube lookat this thing, let's say they
were in their early, earlyto mid thirties, they look at
it and they say, oh my gosh.
I could totally do this.
(39:06):
And they, they were into it.
We, we developed this,um, Excel spreadsheet,
um, we call it The Clash.
Um, I dunno if you ever, ifyou're a music person, but
the Clash is, um, this hadone song, one of the, one
of their favorite songs was,should I stay or Should I Go?
Yeah.
And so what we do is we plug in.
The deal and then we plug in yousticking around doing nothing
and selling to the G two.
(39:27):
Um, and, and 90% of thetime it makes so much more
economic sense for you to sell.
Now get the big check now.
Long-term cap gain statusbecause, so you can, you can
tax arbitrage, have the earnouts and still get paid to,
to do it as long as you want.
Mm-hmm.
Yeah.
Super interesting.
(39:48):
How do you think the Gtwo feels about that?
well, when the, when the Gtwo emotionally starts looking
at it, it's, it's everysingle time they're like, I,
I don't want you to do this.
Yeah.
Yeah.
It's the what about me syndrome?
Yeah.
But then you look at thefounder, the, the advisor,
the G one, and when theystart looking at the numbers,
they said, this is so stupid.
(40:08):
I, I, there is no reason in theworld why I shouldn't do this.
Yeah, there's noway I can't do this.
And hey G two, how arewe gonna make this.
work with you?
And that's where you get intothose kind of swaps, as you were
mentioning, and the long-termopportunity for the G two.
Yeah.
And then the other thingyou mentioned is about the
other spouses that are notin the financial services
business, how you split,how you splitting all that.
(40:29):
The other thing too is a lotof times the G two doesn't have
the same skillset as the G one.
Uh, as mom and dad, they,maybe they can't market,
they can't bring in clients.
They need help.
So a lot of these other firms,these buyers out there when
they say, Hey, be part of theSchwab of or Fidelity custodial
referral program, or We haveAI based marketing now that can
(40:50):
drive leads to you getting newclients is really super hard.
Or here's the latesttechnology that we have.
All these thingsare put in place to.
The entire organization, Gone, G two, G three staff grow.
And when you're growing,you're doing great.
If you're not growing, you're,you're, you're, you're basically
not gonna ever, ever, evermeet expectations for yourself.
(41:13):
Yeah, and you can grow thatcashflow even if, even if the
business, to your point earlier,has been sold by the senior I.
or at least a good portionof it has you as a G two.
I think you have to decide,is my ego in owning the
practice fully or do I.
really just care about whereI'm gonna make more money?
Right.
And so this is, this is whywe close 87% because we have
(41:37):
this discussion upfront.
Yeah.
You know, we don'twanna waste your time.
Um, I said, look, we, andwe, and you know, if, if I
can get you between 30 and.
$45 million dollarswhere you could stay and
get an X, Y, Z payout.
And the G two's ecstaticbecause he's gonna get, he
or she's gonna get, somestock swap and some upside.
assuming you fell in love withthe firm, would you do the deal?
(41:59):
And if the answer is nah,maybe I'll think about it.
We're not working with you.
Yeah.
Such a good, sucha good reminder.
You, you are valuing them,they're valuing you and your
expertise and you're puttinga value on, Hey, my time is
worth something here too.
And I'm, I'm gonna vet you.
as a client also.
Love that.
It's definitely somethingwe do in our business too,
(42:21):
and, and it's hard to sayno, but sometimes we have to.
Exactly.
Well, that was, again, a lot of.
financial advisors that aretrying to find a successor Yeah.
struggle mightily, you know,is it, is it the right fit?
Do I have time to train them?
What do I train them on?
Systems, processes, et cetera.
It is, it's, it's really,really difficult if you've
never done it before.
(42:43):
Yeah,and, and what we're seeing is
we're seeing a lot of G twos onthe street because they were,
they, they thought they weregetting into a good situation
and it wasn't a good situation.
So again, you need someexpertise around that.
Um, and some guidance,some, some advice.
That's where you shouldspend your money if I was
an advisor, is findingsomeone to help you do that.
Yeah, super interesting.
(43:04):
We can definitely help withthe hiring and sort of the
onboarding of a G two, butyou're right, there's a
whole bunch of skillset thatwe gotta tackle with that G
two and you've gotta createthem in a way that not only
are they able to serviceyour existing business, but
they're able to go out andgrow the business for you too.
And that's a another skillset.
this was so great.
Thank you so muchfor the conversation.
(43:26):
Um, absolutely incrediblework that you guys are doing.
To our listeners, if you'vebeen sort of heads down and
building and you've neverpaused to kind of think about
what your firm is worth.
It sounds like now might be areally good time to do that.
JPTD would be happy to help.
And it's not just aboutretirement, it's about growth,
it's about optionality,it's about leverage.
It's about buildingsomething that lasts for
(43:47):
you and for your clients.
So hopefully today's episodebrought you some clarity.
Remember, it's not just apodcast, it's a playbook.
Hit subscribe.
Look forward to talkingwith you next time.
Thanks so much.
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