Valuing a wealth practice is a nuanced and complex process. But one of the most common misconceptions among many distributors is this: “If an asset manager is valued at 4-5% of their AUM, so should my practice.”

This assumption is fundamentally flawed. It shows a lack of understanding of what drives valuations in different types of financial businesses. An asset management business and a wealth business are fundamentally different, even though they may operate in adjacent spaces. While both revolve around managing money, their structures, operations, and growth drivers set them apart in significant ways. A solo wealth practice or even a one with a few partners, no matter how successful, cannot be compared to a large asset management firm. The reasons for this lie in size, growth potential, scalability, processes, and a host of other factors.

Let’s explore why these comparisons fail.

1. Size Matters

An asset management firm often manages billions—or even trillions—of dollars in assets. Your solo practice may handle a respectable book of business, but the scale isn’t remotely comparable.

Size plays a critical role in valuation. Larger firms enjoy economies of scale, better pricing power, and the ability to deploy significant resources into growth initiatives. Investors or buyers see these firms as less risky and more predictable in generating returns.

A solo practice, while valuable, lacks this kind of scalability. It’s often dependent on one person—you. If you’re unavailable, the business slows down. A solo practice is more vulnerable to external shocks and less predictable for buyers. That alone significantly impacts valuation.

2. Growth Potential

The value of any business is driven by its growth potential. Asset management firms have expansive growth capabilities. They can attract institutional money, expand into new geographies, launch new products, or acquire other firms. They are built for scale and designed to grow exponentially.

A solo practice, on the other hand, has limitations. Growth depends on your personal capacity to serve clients. There are only so many hours in a day, and your ability to scale is constrained by your time and resources. Buyers of solo practices often see a cap on growth, which lowers valuation compared to larger firms.

3. Processes and Systems

Large asset managers operate on well-oiled systems and processes. They have teams managing operations, compliance, marketing, research, and client servicing. Their businesses can run smoothly even if the CEO steps away for months.

In a solo practice, you are the system. You are the marketer, client relationship manager, portfolio strategist, and business operator. If something happens to you, the business is directly impacted. Assets can go away in less than 12 months. Buyers understand this risk. They value processes, systems, and teams—not just AUM.

If you’re looking to improve your valuation, this is where you can start. Build processes and systems that make the business less dependent on you. Show buyers that the practice can function seamlessly even in your absence.

4. Client Demographics

Asset managers also serve institutional clients or ultra-high-net-worth individuals. These clients represent significant ticket sizes, making the AUM they bring in more valuable.

Most solo practices serve retail clients, mass affluent segments and some high-net-worth families. While this is commendable, the size and stickiness of these clients differ. Institutional clients often have long-term contracts and higher retention rates, while retail clients may churn more frequently. Buyers account for these differences in their valuation models.

5. Revenue and Profitability

The revenue model of asset managers is also different. The revenue streams are far diversified and not dependent on a few clients. A solo practice with concentrated revenue from a handful of clients is seen as riskier than a diversified, scalable revenue model.

6. Brand and Market Presence

Asset managers invest heavily in branding and marketing. They have a recognizable presence in the market and often a reputation built over decades. This brand equity adds significant value to their business.

Most solo practices operate locally or within a niche. While you may have strong relationships with your clients, your brand equity is limited. Buyers can’t capitalize on your brand the way they can with a large, established firm.

7. Team and Talent

A large asset manager has thousands of employees—specialists in every aspect of the business. This talent pool creates resilience, innovation, and long-term value.

In a solo practice, the “talent” is you. While your expertise is important, it’s not transferable. Buyers look for firms where the intellectual capital can remain post-acquisition. If you’re planning to step away, it’s a risk they must account for, and it reflects in the valuation.

8. Valuation Multiples Vary by Business Type

Valuation isn’t just about AUM. It’s about the multiple applied to the AUM, which varies based on the business model. Asset managers attract higher multiples because they are scalable, diversified, and less reliant on one individual. A solo practice doesn’t have those characteristics, so the multiple applied is lower.

For example:

• An asset manager might be valued at 3–4% of AUM, although this can vary significantly based on factors like the type of AUM, fees, and profitability. But even this isn’t exactly how asset managers are valued. For instance, SBI Mutual Fund and Quantum Mutual Fund wouldn’t command the same valuation. (I might write a separate post on this topic.) Asset managers are typically valued using either the market approach, which looks at valuation multiples from comparable transactions, or the income approach, which uses DCF (discounted cash flow) or single-period capitalization methods.
• A solo wealth practice is typically valued at multiples of revenue due to its limitations in growth, scalability, and risk profile.

9. What You Can Do to Increase Value

If you want to improve the valuation of your practice, focus on these areas:

• Build systems and processes that make the business less reliant on you.
• Diversify your client base and revenue streams.
• Invest in technology to enhance scalability and efficiency.
• Strengthen your team or create a succession plan to show continuity.
• Document and showcase your growth potential to buyers.

Buyers value businesses that demonstrate scalability, and the ability to grow post-acquisition. These are the factors you should focus on to bridge the gap between your current valuation and your desired valuation.

10. Stop Comparing Apples to Oranges

Comparing your solo practice to an asset manager is like comparing a boutique café to Starbucks. Both are valuable, but they operate on entirely different scales, models, and dynamics. Your practice has its own unique value, but it’s important to evaluate it based on realistic benchmarks.

Understand what buyers are looking for in a solo practice. Highlight your strengths, address your weaknesses, and position yourself as a professional who delivers consistent value to clients. Your valuation isn’t about matching an asset manager’s—it’s about reflecting the value you’ve built in your own space.

Focus on what you can control. Stop comparing yourself to firms that operate on a different playing field. Build the value of your practice on its own merits, and the right buyers will see that value.