Valuing your practice has several steps. The most important step is to identify “What Is Your Number?”
First, you need to find the recurring revenue that your AUM produces without your added input such as trails, 12b-1s, and fees. For example, if you have $40M in AUM, your recurring revenue might be $100,000.
Second, you will divide $100,000 by $40M in AUM, which is 0.0025 or 25bps. Consequently, “Your Number” is 25 bps.
Under these assumptions your practice could be worth 2 times recurring revenue or $200,000.
There are many ways to increase the value of your practice:
1. Change your practice to a fee-based business
2. Add more client services
3. Increase “Your Number” to 100bps
The more services you offer and deliver to your clients, the more valuable your business will become. Recurring revenue can be multiplied by a factor of 3 times earnings under a fee-based model. Using $40M in AUM as illustrated in the previous question, a fee-based model could produce recurring revenue of $400,000. Consequently, increasing the value of the business to approximately $1.2M.
Yes! CWP creates two market commentary articles each month.
The first article is geared toward the advisor and is detailed with specific portfolio changes, drivers for the portfolio changes, current economics, and a forecast of the economy moving forward.
The second article is written for the client. This write-up highlights the economy, changes to the portfolio, and our forecast moving forward. The client write-up is layman so all clients can understand what CWP is doing for them.
Portfolio modeling is a diversified system of securities that are grouped together to provide an expected return with a corresponding amount of risk.
CWP uses portfolio models for several reasons including:
1. Modeling allows CWP to manage large amounts of assets efficiently
2. Creates the ability to implement changes to the portfolio very quickly
3. We can apply our analytics very easily across all model sets
CWP has 6 models: 3 Income Models & 3 Growth Models. By having 6 models available, CWP can help the advisor guide the client into the most suitable model for their desired risk and objectives.
Working with CWP, an advisor can start managing Assets Held Away (AHA). AHA are defined as accounts not actively managed by an advisor or custodian affiliated with the advisor’s financial institution. Examples of AHA accounts are 401(k), 403(b), 457, Simple IRA, Annuities, and Life Insurance.
CWP has the account management capabilities to allow advisors to add these accounts to their platform. Based on our experience, assets held away can increase an advisor’s AUM by approximately 20%.