The Remarkable Liquidity Of Financial Advisory Firms When Planning Your Own Advisor Retirement: Kitces & Carl Ep 188
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In this episode of Kitces & Carl, hosts Michael Kitces and Carl Richards tackle a critical question from advisor Cheryl, who is planning her retirement 10 years out and wants to ensure her firm is positioned for a strong exit. The conversation centers on the evolving landscape of advisory firm valuations and exit strategies, emphasizing that today’s advisory firms are far more liquid than historically believed—thanks to a growing pool of well-funded buyers and a proven ability to transfer client relationships. Kitces breaks down the three key levers that drive firm value: profitability and cash flow (the top priority), client and advisor transitionability, and sustainable growth (more relevant for larger firms). He challenges the long-held assumption that solo advisors must rely on internal succession, noting that external buyers now offer viable, often more lucrative, exit paths. The hosts also address the myth of massive valuation multiples, explaining that many headline numbers are inflated by aggressive terms and earnouts, while actual cash flow and deal structure matter far more. Ultimately, the episode underscores that advisors should focus on what they can control—building a profitable, well-documented, transferable practice—regardless of whether they pursue internal or external exits. The discussion also explores the strategic implications of these shifts: advisors who prioritize legacy may still need to start internal succession planning early, but those focused on maximizing value can leverage external buyers for potentially higher returns. Kitces cautions against overestimating the risk of valuation collapse, noting that even with rising interest rates and market volatility, firm valuations have remained resilient due to strong underlying profitability and buyer confidence in recurring revenue models. The episode concludes with a reminder that while the future is uncertain, the core principles of business health—cash flow, documentation, and client retention—remain timeless. Advisors are encouraged to use this clarity to make intentional decisions about their firm’s future, whether that’s building a legacy or securing a strong financial exit.
Profitability and free cash flow are the #1 drivers of advisory firm value—buyers focus on what they can extract, not revenue.
Client and advisor transitionability are critical: well-documented client records and systems make firms far more attractive to external buyers.
External sales are now viable for solo practices due to abundant capital and proven transferability of relationships—no longer just a 'last resort'.
Internal succession is still the best path if you want your firm’s culture and philosophy to continue, but it requires starting early and finding a true cultural match.
Valuation multiples are often misleading—many high numbers come with earnouts and contingencies; actual cash flow and deal terms matter more than headlines.
…and 3 more takeaways available in PodZeus
Introduction: The Vision for Your Firm’s Future
“Is your vision at the end that the firm continues more or less as you built it, or you don't actually care if your firm survives. You just want to be certain that your clients and team are taken care of.”
Cheryl’s Question: Planning a 10-Year Exit
The hosts unpack a listener question from Cheryl, a solo advisor planning to retire in 10 years. She’s hired her own financial planner to project her firm’s value and wants to know what steps to take now to maximize her exit value.
The Top 3 Levers That Drive Firm Value
“The number one, like the simple number one on this is like, okay, profits, free cashflow. Just how much buyers spend money, borrow money, put dollars in, in order to get returns on their investment.”
Internal Succession vs. External Sale: The Strategic Choice
“The weird reality now is that's really not true anymore. I mean, the stat is still out there that there's 30 to 50 buyers for every seller.”
The Myth of the 'Unrealistic' High Valuation
Kitces debunks the idea that external sales always yield dramatically higher valuations. He explains that many headline numbers come with earnouts, growth requirements, and contingencies, and that internal buyers are often cashflow-constrained, limiting their maximum offer.
“Advisory firms are astonishingly liquid. This is supposed to be a ridiculously illiquid relationship-based, takes 10 years to find someone to be your successor and you got to hope that they actually stick all 10 years to have a chance at getting a check at the end that now is a, I call an investment banker and someone's probably got a check for me in six to 12 months...”
“The number one, like the simple number one on this is like, okay, profits, free cashflow. Just how much buyers spend money, borrow money, put dollars in, in order to get returns on their investment.”
“The profitability of the business, the strength of the relationships to retain, the transferability of you ready and able to do the things that it takes.”
Hosts
Michael Kitces
person
Carl Richards
person
Cheryl
person
PE Firms
organization
Wealthbox
product
Black Diamond
product
Salesforce
product
FPA National Capital Area
organization
Kitsis and Carl Live
other
Redtail
product
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