Good morning, everyone. Thank you so much for coming today. We are here in our presentation, Understanding the Value of Your Business. My name is Mallory Boutin. I'm here with my colleague and my boss, Marcus Hagan. We are here from FP Transitions. As a little bit of background on us, we're a full-service consulting firm working exclusively with independent advisors. Our kind of guiding north star is helping our clients protect, grow, and ultimately prepare to transition their businesses, whether that's through an internal transition or eventually through an external sale. So we have a pretty robust suite of services. We do project-based consulting, a really strong legal department, our M&A team. And then where Marcus and I sit is in equity management solutions, and that is our kind of long-term relationship-based consulting. And a lot of the work that we do is working very closely with our valuations department, so using the insights that our clients are gaining from typically annual valuations to help them really understand their businesses in a more deep and robust way and to use that data to help them grow into the future. So valuations, I think a lot of us think kind of the back of the napkin. We're just going to talk about revenue multiples. But there's actually a lot of real kind of academic minutia that goes into it. You could spend a couple of semesters in business school learning about valuations. You could spend a couple of years becoming a certified valuation analyst. And those things are super helpful if what you want to do is do valuations for a living. If you want to analyze valuations on a daily basis. But for a business owner, it's maybe a little bit more than you need. So the focus today is really understanding the value and valuations of businesses in a way that is meaningful as you're trying to grow and build your business on a day-to-day basis. So we're going to start today with some kind of valuation fundamentals. Then we're going to go into common approaches. And finally, how to use that data as you're growing your business. A lot of folks say, well, I'm not planning a transaction for a while. I don't need a valuation. But this is really how you can use those insights, even long before a transaction is being contemplated. So where I'd like to start is really talking about the language. I think it's really common in typical day-to-day conversation that people use the terms price and value pretty synonymously. But very specifically, the way that we're going to be speaking today, these are two different concepts, two different definitions. So value is the economic advantage, the value stream, the series of benefits that you expect to receive over the course of time. Versus price, which once the price has been struck is a statement of fact. So value is an opinion. It is beauty in the eye of the beholder. There are specific considerations that we want to think about in terms of value that is maybe different than price. So the director of our valuations department has a nice anecdote that I think describes this well. And he is not here today, so I'm going to steal it as my own. So Aaron, our valuations director, first love, for sure, valuing financial services businesses. But close second is music. He's a real audiophile. And FP Transitions is headquartered in Portland, Oregon. We have a lot of very nice hipster music stores. So Aaron and I can walk into a music store, flipping through the vinyl. Aaron sees a Van Halen record and is so pumped. He knows all about where it was recorded. He has this cool producer that he knows about. There's some very artistic drumming. I don't know. Do not tell Aaron, but I don't care much for Van Halen. I'm sure they're very lovely. It's just never really been my jam. So we're kind of flipping through a little bit more. And again, this is a hipster store, so their cataloging is a little unusual. The next record is Van Morrison. And I love Van Morrison. And it holds a special place in my heart. My song with my husband is Into the Mystic. It was the first dance at our wedding. I get all these really happy brain chemicals, right? So if I'm thinking about the future value stream for me, I'm going to have a lot of future value from this Van Morrison record in a way that is just not there for me with the Van Halen, right? So now Aaron and I are standing next to each other at the record store. We're both holding our vinyl. And it's similar vintage, similar quality. We look at the price tags. They're both $15. So they have the same price. That's a fact based on what the sticker says on the record. But the value stream for me, for my Van Morrison record, is going to be much higher than for Aaron, and vice versa with his Van Halen record, which I'm sure he'll enjoy very much. But so it's the future value stream. It's the benefit we're going to get into the future is the value versus that struck price that is the statement of fact. So as we're thinking about the approach to valuations, there are a few key concepts that we bring into an evaluation project. And that is purpose, standard, premise. So we start with purpose, the why behind doing the valuation exercise. The kind of guiding principle for what we're doing is we're going to assume that the valuation we're doing is we're going to assume that there is a transaction. And the purpose might be, yeah, there actually is a transaction. We're going to do M&A. We want to understand the value of the practice on the open market so we can adjust appropriately as we bring it to market. It could be an M of the M&A, a merger. And we want to understand the relative values of the two firms that are coming together, and potentially even the synergistic value of the combined firm. Is 1 plus 1 really going to equal 3 after the merger is consummated? It could be a next generation owner coming in buying a piece of equity that's a very different why behind the valuation. There are also a number of tax reasons or kind of other planning reasons why you would want a valuation. You could be doing estate planning. There could be a philanthropic need or a gifting reason for having a formal appraisal done, or even just changes in life circumstances. Oftentimes, divorces, for example, require an appraisal of the business. So we always want to start with that why. And the why is then going to inform the standard. And the standard really asks, who is the buyer? What is the lens through which we're looking at this practice? Typically, there are kind of two key standards that we might approach this from. The first is the fair market value. Fair market value is going to assume a hypothetical buyer, hypothetical seller, both have a fair understanding of the business today and into the future, and also into the transaction itself. So it's going to give the general statement of value. The other kind of approach here is an investment buyer. An investment buyer assumes a very specific purchasing firm and the potential synergies that you're going to find there. So assuming I'm going to buy, me specifically, I'm going to buy this firm, maybe this firm is the missing piece for my broader strategic plan. Maybe it's a kind of client class that is really going to complement my current systems. Maybe it's a new area that I've been trying to get into. There is an increased synergistic value stream for me as the buyer. The other piece that it could be is I have better capitalization. I have better operational structures. I have kind of internal pieces specific to me that make this a good investment for me and could increase or decrease the value of the selling firm. So once we know the lens through which we're looking, we know why we're doing it, we know the lens through which we're viewing the firm, that last piece is going to be premise. And premise talks about what is happening to the firm post-transaction. What is the long-term benefit stream going to look like? In other industries, it might simply be an asset sell and the business is going to wind down and essentially cease operating. Maybe it's a manufacturing firm. They have in-stock products. They have machinery or a building. And we just want to find out the value of selling off those assets and shutting down the company. In our industry, the typical assumption is that the business is going to be a going concern. It's going to continue into perpetuity after the close of the transaction. Even within that, there are still kind of some nuances to consider. Is it a sale sale where the founding partner is going to transition the clients, then leave within the next six months to a year into the next phase of their life, enjoy some drinks by the pool? Is it a sell and stay where they're going to sell the clients to the new firm, stay on as an employee for several years? Or is it an internal sale where it's the next generation owner staying on long term? So these are the three kind of standard pieces that we need to consider going into any valuation project. Just like you wouldn't want to go into a surgeon's office and have them just jump into a procedure before really going into the diagnosis, here's kind of the pre-work that we want to have done before starting a valuation. So value versus price. Here's a pretty typical kind of situation that we see. So somebody gets a valuation done, says, hey, my valuation came in at 2.2 gross revenue, but many of us are receiving unsolicited offers on a regular basis, people calling and saying, hey, are you interested in selling? This person receives a call that says, we will pay you 2.8 times gross revenue. Now, I'm going back to my study group, and I'm like, hey, what is the issue here? Did the valuation analyst just totally miss the boat and really undervalued what I've built? Or are these people really off base? And it's kind of a red flag. I should be worried that they're giving me this crazy offer. This goes back to that kind of point of the valuation assumes a transaction, and that includes price and deal terms. So this is where we might find that the devil's really in the details. So this 2.8 gross revenue multiple, maybe there is a premium there because they're going to change the deal terms. The down payment is going to be less than typical. And then there's going to be some really more aggressive thresholds that you need to meet in terms of revenue growth or client growth or other kind of post-transaction milestones that you would need to hit in order to receive that full deal value. The other piece that might account for the difference is that distinction, again, between fair market value and investment value. The fair market value kind of out in the general world really might be the 2.2 times your gross revenue. But there is something specific about this buyer where, again, you are that puzzle piece really kind of completing their picture. You fit really well with what they need, and they are then willing to pay a premium to have that additional piece in their firm. OK. Lastly, I want to talk about kind of how premise really drives a lot of the kind of thinking around the valuation. So consider an internal sale of equity. That G2 buyer who's buying a small piece, maybe 2% or 5%, is essentially a financial buyer, right? Their future benefit stream is really going to be related to the profits of the firm, kind of exclusively. There's really no opportunity for them at that small amount to influence the future of the business. They're not making decisions on hiring, firing, compensation, expense structure. They're really kind of there for the ride. And with internal succession like this, certainly the hope is, over time, they will kind of take on that ownership mindset. They will increase their managerial responsibilities. They will buy future tranches, which will increase their equity share. And with that, maybe the valuation for them changes a little bit, because now they're more able to influence the future of the firm. So think of that versus an external sale or a strategic buyer. This is somebody who can really make major changes, can shape the future of the firm. The future value stream for those folks is going to be different. So for my clients in the room, I apologize. You have heard this line before. But I really like to point out, valuing a business has a lot of nuance, right? It's not a pair of socks where the number is the number and it is what it is. There are a lot of different ways that both buyers and sellers can view their businesses and the future value that they can expect from those investments. So now I'm going to hand it over to Markus. And he's going to talk about some of the inputs into the actual analysis itself. Thanks, Mallory. First off, I'm finding a little bit of a bug, so my voice is a little odd. I'll hopefully make it through this. Thank you all for working with me here. When it comes to approaches to value in the space for financial services, there's really two primary modes that we work in. That's the market approach and the income approach. There is another valuation approach that's called the asset approach. We don't use it in this industry primarily because we don't have a lot of assets, right? The primary asset you have is the goodwill with the clients and the revenue that that generates. And so really what we're looking at is, what is the income stream? Or what are the market comparable transactions? And that's what the market approach and the income approach provide. The market approach is focused on taking a set of actual transactions. So analogous to, say, your house value compared to other transactions and houses in your area. And looking at the square footage value of that and then factoring in things like, did you have an upgraded kitchen? And did you have upgraded bathrooms? And all of those things. That's what we're doing in that market-based approach to value. We're taking transactions that we've been involved in. We have an M&A marketplace at FP Transitions. We see those transactions. We select a set of those transactions compared to the business data that you've provided to us. And then we say, or the evaluation analyst says, OK, here are the comparative transactions. Here's what those deals looked like. Here's what you could expect your business to be worth. And we quote that in what's called the most probable selling price. That does include deal terms. And we provide you some perspective on what are the impacts of those deal terms. By comparison, the income approach is really looking at the business's benefit stream. So it's truly looking at it from an investment view of value. And it's looking at, what is the investor expecting to get? No different than any other equity you would purchase or stock that you would purchase in the open market or in the actual markets. You want income or dividends. So the cash distributions as an owner and or you want value appreciation and growth. So those are the big prime drivers of that. And the way that somebody derives or evaluation analyst derives the income approach to value is by doing a discounted cash flow. So they're doing a calculation of future cash streams that are expected and then discounting that to present day dollars. So this is just a slide to talk about the different approaches, why they're applicable at certain stages of your business development. So we kind of have it laid out in our terms. We talk about books of business. That's a solo advisor with a set of clients, a certain revenue stream that results from that. Those books of businesses are primarily valued as a market approach. Because generally speaking, if you're a solo practitioner, maybe even a practice where you have a couple of solo practitioners who really just have separate books of business that are combined under an entity structure, those are usually transacted as a single point of sale. You're the solo owner. When I'm done with the business and I'm ready to transition, I'm going to sell it to another business owner. So the market approach is the more appropriate approach under those scenarios. Typically, I would say that that generally applies to businesses that are somewhere between zero and AUM, upwards to about $300 million in assets under management. The market approach is very applicable. It's very accurate and is an appropriate way to kind of look at what is your business worth, your book of clients worth, and that revenue stream worth. It is using, like I said before, risk-adjusted multiples and or bespoke transactions. There are advantages to using the transaction approach because it gives you a better indication of what the actual real market is doing, rather than just selecting a multiple range because this is what people are saying the businesses are going for. The income approach, really, for businesses and firms. So now you've developed more of an internal structure. You have other owners in the business with you. Your firm is of size and scale, over 300 million in AUM. There are other owners in the business, so the more likely path for sale is to other owners in the business. And therefore, you really have to value what is the stream of benefits that those other owners are going to receive and what are they buying. So the more appropriate methodology, if you will, for valuing the business at that point in time is the discounted cash flow. Assessing risk. So if there's a secret to the methodologies and to the valuation process, these are the three things that we are primarily looking at when we assess a business and value it. We're looking at what is the likelihood that the client base and the revenue that's being produced by that client base actually transitions in the sale of the business. We're looking at what is the demand in the marketplace for that business, and ultimately, we're looking at what is the quality of the cash flows. So what do those things mean? Well, if you think about transition risk, some of the things we look at there or consider there are how long have you been working with these clients, right? The longer you've been working with clients, the more likely they are to listen and take your advice and transfer to this buyer that you are saying is the person that's going to work with them going forward. If you're thinking about demographics, so you've got clients that are older or maybe you have clients that are younger. Those are going to be affecting that risk of transition and what the buyer is potentially going to receive as a proceed or as a benefit stream from the sale of the business. Types of revenue can be a source of transition risk. If there are specifics of products that have been sold or if you aren't doing, say, fee-based recurring revenues or maybe you're doing planning fees and there's no guarantee that that planning fee will happen in the future. Maybe the buyer, for whatever reason, the clients don't see as a great financial planner and they don't want to continue to do financial planning with them. That is a transition risk consideration that goes into the valuation process. Under market demand, a lot of things that are considered there, think about location. If you're in a hot market, Florida, New York, California, there's more demand in those areas than there are in, say, Nebraska. I say that because I'm originally from Nebraska. Types of business, we get a lot of questions here at NAFTA around why are businesses that do non-recurring planning fees slightly less valuable than those that do recurring value streams? Well, I'll tell you the primary reason that it's driven that way is we've done transactions, we've sold those businesses, and they don't sell for as much as the firms that are doing AUM. It's just that simple. Is there a logic and reason behind it outside of that? Not really. That's just the nature of the business. Those are the things from a market demand perspective that we're taking into account. Other synergies come into play there. The type of business that you're doing comes into play there. Demographics also feeds into that market demand. Buyers in the market like clients that have the most assets, so there's a very strong drive for getting clients that are in the age group of 51 to 70, or maybe that next age group down, 31 to 50. Cash flow quality talks about what are the type of products that are being sold, what are the revenue streams, how likely are those revenue streams to continue into the future, so the prime driver there being recurring versus non-recurring. If we talk about what are the assessment qualities or what drives value the most, it really starts with size. The larger the business is, the more market demand there is for it. The larger the revenue stream, the more buyers want that revenue stream. Then it really comes down to what is recurring versus non-recurring revenues look like. The more recurring the revenue streams are, the more valuable they are. Then finally, the biggest one is growth. If you're not growing as a business, then the potential future revenue streams are not as large, so the synergistic benefit there or the future benefit streams that the buyer is hoping to get or capture aren't as valuable. Again, talking about assessing risk here, I just spoke to it, the predictability of the revenue being one of the biggest things. Recurring versus non-recurring, any product variability, not that this room is that into selling insurance or annuity products, obviously, but some of those are less valuable because they have specific writers on them or they might have specific limiters that don't create future revenue streams. Then, again, obviously growth. The more growth that you have, the more valuable your product or your potential business value is in the future. A quick question on the growth. Yeah. Are you purely looking at revenue or are you also considering increased revenue and increased revenue? It really boils down to actually net flow of assets. Yes, revenue growth is important and it should have all of those characteristics, but it's also net new client growth and net new asset growth ultimately that is driving those considerations. Yeah. The second point on the growth, I said it's a big time machine, but is that second point literally a dying client base in some ways? Yeah, that is a big consideration. If you have a bunch of clients that are in distribution phase, the growth rate is slowing or negative, that's going to be a big sign to a buyer that the future benefit stream is not as valuable and it will drive additional value. Particularly if you're looking at the demographic curve and you're not seeing a lot of refill at that younger stage. Even if those younger clients are very small proportion of the assets, the assumption is, A, that those assets will grow and B, that there's maybe next generation clients there in that younger piece. Even as your clients maybe age out, those assets will stay in because you already have these built relationships with the next generation. Yeah, it's interesting when we look at the actual underlying data. We've done over 7,000 plus valuations now of firms across the industry. In looking at the growth data, the firms that have the highest growth rates generally also have the highest deviance from the norm in the 31 to 50-year-old age category. Those are the clients that are starting to grow their assets and growing them rapidly. You get to that 51 to 70-year-old age range, they pretty much have the assets. Those are the clients you want and then after age 70, they do generally tend to start distributing the assets. Cool, the next one. The last little note here, we do see pretty much across the board that typically for an advisor, the bulk of their clients are within 10 years of their age plus or minus. This is something you need to be really mindful of as you are progressing through your career, as you're thinking about bringing on other advisors and as you're thinking about really being mindful and intentional about how you're bridging those generational gaps. We're also going to talk a little bit about driving values and key performance indicators, but before I go there, we don't have a slide on this, but it is what everybody will ask at some point in time, where are multiples today, what does the market look like? We always talk about not using multiples. Multiples are instructive from the perspective of where's the market today. They're not necessarily instructive of where your business is today and the reason for that is every business is unique, so the multiple is just the average, the median. Currently we are looking on a fee-based recurring side, so true AUM, fee-based recurring fees, generally we're in about a 3.4 to 3.5 times gross revenue multiple range. No, that's the average, that's the median right now. How's that compared to the store? Well I've been with FP Transitions for 10 years, I've been in the industry for 30-ish plus maybe years, not that I like to admit that at this phase. But when I started at FP Transitions, two times multiple was kind of the norm. And so it's three and a half now, we'll call it, just for argument's sake, so it's been a pretty systematic move in a northern direction, put it that way. Over the 30 years I've been in the industry, I've never seen multiples go backwards. There was a one year period in 2007-2008 that they kind of flattened out or maybe slowed a little bit. But the reality is you guys are in an excellent business from a valuation standpoint. These businesses are very powerful, and we've all been lucky to work in an industry that has had a pretty big tailwind behind it the whole time. So to that, do you have numbers on billion to five billion, less than a billion, I'm going to confess. Sure. What I'll say is this, again, multiples are instructive of the marketplace, less so by an individual business. There are certainly tiers, and I'm going to give you some ranges. Don't quote me on this, this is like, we're throwing darts at dart boards now. Generally speaking, two to two and a half times towards the bottom end of the market, upwards of four to five times on a revenue basis. You want to convert these over to earnings basis, if I talk about medians, assuming real compensation structures, which most of you do not use, which is why we quote things in revenue multiples, assuming real compensation structures, about a 30 to 40% bottom line profitability and you're looking at about an eight to 10 times earnings EBITDA, true bottom line profitability margin, in today's marketplace. And I would argue we're edging into that nine, 10 times right now. As far as the market as a whole and where it's at today and where it's going, what we've been seeing, you hear a lot of people out there, lots of industry talking heads. Compensation is a principle, if you're looking at a discounted cash flow, interest rates go up, the risk free rate goes up, your weighted average cost of capital goes up, value should come down. That's the nature of it. That same statement is true for equities markets, and we haven't seen equity markets come down, have we? So the argument from a technical standpoint is true, and the statements out there are true to some degree that yes, as interest rates go up, activity in the marketplace should come down, less financing should be available, that should ultimately affect values. We have not seen it. Quite the opposite. Values have held steady or gone up slightly. And I don't, I can tell you honestly and say this honestly, I don't foresee any change to that in the future. And the reason for that is literally there are 50 to 100 buyers for every seller in the marketplace. We put a business up on our website for sale, and we're getting 100 people inquiring on it. And that's, you know, how many of those are qualified, and we could get into the minutia of the detail of that, right? I can assure you at least 20 to 25 of those are good qualified businesses that can buy and have the capability of doing it. How many of those are fits for the business for sale, that's when we get down into the, okay, here's the five to 10 that are actually real bidders on that business. But that's still a lot of competition. In your looking at overall growth and value, is there any consideration of benefit to the firm's presence on social media, number of followers and things like that? Yes, but from a valuation, practical valuation standpoint, that doesn't pull through other than, in theory, it should affect the revenue, right? And the growth rates of the firm. But if you have the growth rates, then you have that. That should, in theory, be driving the growth of the revenue, right? So we'll talk about driving value here a little bit, and again, I'm much more of, or less of a presenter and more of an open to questions, so if you have any questions, feel free to jump in and go ahead and talk about this. So obviously, this is our shameless plug. We are both part of the group in our organization that works with clients on a consulting basis. It is consulting around valuation, death or disability planning, key performance metrics, benchmarking. So we honestly believe that you should be measuring yourself annually, doing evaluation every year, looking at what are the drivers of those values, and actually planning for what does the exit look like? What is the strategy? How do I maximize this? Even if it's not just for valuation maximization, life maximization, whatever it is that you're trying to accomplish, you should be trying to do it, right? You are all financial planners, right? And yet, many of you proceeded the business without your own financial plan. Measuring, obviously, benchmarking yourself versus your peers, a great way to do that is through the valuation and our benchmarking tool. Order-specific KPIs. So we're going to talk in the next slide a little bit about what are the right key performance measures for where you're at in the development of your business, right? A billion-dollar firm is not looking at the same key performance metrics as a hundred million-dollar AUM firm. And then mastering, as you get feedback and the feedback loop of what are the key performance indicators that I should be watching, what are they telling me, how should I change them, I'm changing them, am I getting the effect, right? That's the whole process of what we reference as equity management. We kind of coined that term. And then this really comes back to folks saying, well, I'm not planning on selling my business for a long time. I don't need to value it. I'll come back in 10 years. But this is how we use the data, and not just we FP transitions, but as business owners in general, to understand where are we today, what do we need to do to get to where we want to be tomorrow, and how do I use that to shape my decision-making around what the long-term future is going to be. Maybe my personal idea is I really want to do an internal succession. I want to have next-generation owners. I can't wait until I'm 65 and my business is worth $10 million, and now I have these younger folks who literally can't afford to buy in. So I need to be mindful about how do I manage both my business and the equity in my business to have the future state that I want. And you need to have this kind of baseline data and an understanding of how that is changing over time to really make those thoughtful decisions. Yeah, I think it's a lot about the feedback loop, right? Am I seeing the changes that I need to happen to reach the goals that I'm planning to reach? Yes? When you're doing evaluation, do you take into account how efficient the practices run? I mean, do you get into that mid-degree? Like, do they have workflows, and what's the client experience like, and stuff like that? So again, not directly. So we're not going to ask you, what does your workflow process look like, and make a snap judgment on whether this is a good workflow versus this other workflow. But ultimately, if there's good workflows, that will show in the number of clients you have and the revenue that you're getting and the positive natures of the things that we do measure. So yes and no. But when we talk about some of these things, these are key performance measures. We've kind of broken it down by, OK, here are some that sole practitioners would be specifically focused on. Practice owners, so when we say practice, maybe it's a couple of sole practitioners or maybe three producers, if you will, that have all kind of structured themselves under one entity, is a great question talking about expenses and profitability. When you're doing that market-based approach to value, we ask about the expenses, but they're not highly impactful, because the assumption under the market is that you're going to sell the business and go away. So it's a synergistic buyer, another financial firm that has its own cost structures that will just overlay on top of your revenue stream. So they're important, they do affect value, but in that market-based approach, less so. When you're looking at a DCF, a discounted cash flow approach, the income approach to value, very impactful, because now you're talking about an internal buyer, maybe a minority shareholder who isn't going to be able to change any of that stuff. Those impact them directly. And so that can have much more of a direct effect on the value and the assumption of what that value and benefit stream is. So when you look at some of these key performance metrics, that's why enterprise is much more focused on EBITDA. If you're just a practice holder, sole practitioner, EBITDA is not really that big of a deal. It's all revenue, because it's all going to you. Question? I have a question. What's the major distinction between a practice-centered enterprise? between a practice and an enterprise? Is it a number of producers, as you mentioned, or is it a UF, or is it a combination? Sure, so these are listed as three kind of silos, but we should think about it as more of a spectrum. And a practice is gonna be kind of your, maybe two or three owners, maybe a small staff, four or five people, up to maybe about 300 million in AUM. That tends to be kind of a pivot point, that 300 million AUM in today's dollars, at least. That's really where we see a lot of shift in how you need to run the business, bringing in more owners above that point. So it really is a combination of the complexity of the business, the number of equity owners, the total cash flows moving through the business. And just as you move kind of from left to right, the complexity in all the areas increases. And as that complexity increases, then that's how you need to kind of shift the lens over time. I would add to that that if we talk about it in esoteric terms as building enterprise value, what does that mean? If you go read a business book and they read a definition of enterprise value, what are the people, who are the staff, how is it put together, right? Is it done profitably? That's building enterprise value. That's why these key performance metrics are different on this end than that end. All of those key performance metrics still apply to the businesses, but they have more important things to be thinking about because they're larger, they have larger structures. That spectrum, it's very important, especially when you start to think about what am I doing with my business and what am I planning around? And how do I bring people into the business? There's a couple of four core fundamentals that I like to coach people to as we're talking about value and equity management. The reality is each individual producer can only handle so many clients. I certainly have seen certain models and certain advisors handle hundreds and hundreds of clients. I had one guy who literally was a solo practitioner. He had 800 clients around three cities in Florida and that was his whole life. He would wake up every morning in one of the three cities, go out, see his clients, move to the next city, do the same thing all the time. Not a business I wanna run, but it worked for him. Very seldom is that the fact pattern. The vast majority, I can tell you, it's about 100 to 150 clients per advisor. Would that guy's business be worth less? Much less, right? It certainly could be worth more if it was structured differently. His is a very valuable business because he has a lot of clients that do have a lot of assets, but it's a core group, really, about 100 clients of those 800 that are the vast majority of his value, right? And so that's... Well, the other thing is then as the buyer is considering what is the future value stream for me, they have to think about, all right, well, this is one person servicing all these clients. In our system, with our workflows and our approach, that's gonna be four people, right? So I need to think about do I have four people who can do that? What is the staffing cost for those four people? So the value stream is different, right? Because the expense structure is gonna be different. Yes? Yeah. In the smaller practices and small solo groups that we get together at the conference, there's a lot of practitioners that are full. I can't take on any more clients, you know? So then from the growth standpoint, if you're one of those advisors, I don't have to wait. And you're taking on clients only when clients leave and you're certainly in this main group. The potential, I mean, I've turned down several clients, but I just can't take on any more clients. How does that hold? Is there a market evaluation of where the practice is? Are there potential growth out there? How does that? It definitely factors into the business, right? And the value of the business. You know, for one, because you're not growing, you're actively making a choice not to grow, you're capping yourself here or here, right? If you think about multiple value ranges, your lowest multiple range is down here, your highest multiple range is up here. Does that mean everybody wants to build a business? No, I mean, you have choices. That's the whole beauty of this. You own these things. These are assets to make choices around. So yes, there is essentially a negative value connotation to the lack of growth. But can you address that as a solo practitioner? Yeah, you can start to cull your book, get rid of the people that are under $500,000 and move up scale. So when we do the benchmarking in the data, it's interesting, we've revamped how we're doing benchmarking and we've put people in matching groups. We call them tiers. So when we did it, we've done it through five different metrics of value. So we're looking at earnings, we're looking at average assets per client, we're looking at ownership structure, how many owners are in the business, what does the employee structure look like? We're looking at total revenues and then profitability, I think I said that. But what we see is, generally speaking, the value, perfect curve, right? Out as you go, the bigger the business is, the higher the value is. On a relationship basis though, very different. Tier one, solo practitioners, their value level's here. Tier two, next jump up. But from a value per relationship basis, they are as valuable as the tier five firms that are clear out on the other side. They just don't have as many relationships because they can't build anymore. But they've got very, very high net worth clients. So they have made a practice choice to optimize value under a solo practitioner or small practice perspective, right? From there, tier three, you're building out the business, you're starting to get into that, what Michael Kisses calls the ugly middle, right? You're investing in staff, you're paying more, you're probably not as profitable, right? Your bottom line earnings probably goes below that 30% threshold for a period of time. But you're building for growth. Again, it's interesting to look at the data in some broader perspectives that way. And with 7,000 valuations, we have some unique perspectives. One of the other benefits of having this data is it helps you make the decisions about your own personal value, right? Like, okay, I can see what I would need to do to shift to the right in the spectrum, but I don't wanna work 80 hours a week and I don't wanna manage staff and I wanna make these other value judgments about how I wanna spend my time and effort. And that's totally valid. And we can help you optimize and build to what it is that you wanna be. I work with a lot of clients who are solos and wanna stay solos and wanna be able to take a month of vacation and work with the clients that they love and have comfortable, profitable lives, but not drive farther to the practice or enterprise kind of size. And that's also a great option, so. And this is why doing a valuation on an annual basis is not about am I ready to sell, right? It's what am I doing long-term, and how am I managing this process? Do I understand ultimately what my end goal is and how I end up getting there? Just as we transition to an act like sort of a business coach, if you take on a client, is it a long-term client until they sell? Is that how you're writing? We would love it to work that way, yes. Intentionally, that's how we've built it. But you have a choice as a business owner, right? We're not gonna say no to your business if you just wanna come to us and do a one-time valuation. You can do that. If you just wanna come to us when you're ready to sell the business, we can find you a buyer and we can sell your business, right? But ultimately, that's why we've built this equity management solution. That's why we've partnered with NAPFA for the NAPFA version of the equity management solution, is to help you guys. And yeah, we're a business coach, but with a very specific lens and focus on the value of the business and ultimately what you're trying to get out of that in the end. So some folks, like Marcus was saying, will come to us for just a one-time service. Some people will maybe have a membership for two or three years, kind of get their feet under them, kind of an understanding of what it is, and then maybe take a pause and come back later. We have other clients who have been doing annual valuations and consulting with us every year for 12 or 15 years. So it's really kind of whatever is most valuable to you. The equity management solutions programs were spawned about 13 years ago, and we've had 6,000 firms go through the process with us. We currently have about 1,500 that are actively engaged with us, and I would say about 500, 600 of those go all the way back to the original 13-year kind of perspective, 10 to 13 years that they've been doing this with us. And it's very interesting to watch the firms over the course of their lives and as they grow, and we love working, especially with the NAFTA folks. It's a great relationship, and you guys are a joy to work with. Yes? You mentioned the NAFTA version. Thank you for asking that shameless plug again. Yes, so NAFTA approached us, so we built the equity management solution programs generically for the marketplace, right? NAFTA came to us after somebody had posted their want for a deaf or disability partner on the NAFTA chat board, and the NAFTA board said, we really don't want people doing this. Do you guys have a solution set that solves for that? And I said, absolutely. It's called our equity management solutions, and here's what the products offer. And so there's a couple of different levels to the product. We have the essentials program, which is the base set, and that's evaluation of your business and a deaf or disability document. So if you have a partner, and you don't need us to find somebody to talk to, that's all you would need to do. What NAFTA was solving for, wanting us to solve, helps them solve for, was somebody who's a solo practitioner who doesn't have a potential partner currently and wants us to help them search for a potential partner and then document a deaf or disability arrangement, and that's what the NAFTA program is. So the essentials program at the bottom is $95 a month. It's a 12-month commitment, so a little over $1,000. The NAFTA program's $150 a month, and then we have a couple of step-ups from there. We have the equity management solution grow program. That one is $395 a month, but that gets you the benchmarking and sort of the ongoing quarterly coaching, and then we have a professional level, which is for this enterprise side of the coin where you've started to build out your ownership team. You might have owners in the business with you or contemplating doing an internal transaction, and the method of value goes from the market-based approach to that income-based approach so that you can really truly understand what is the benefit stream for an investor in your business. So we're trying to meet you guys where you're at from a business perspective and be able to provide some level of coaching and consulting around it. You had a question? Yes, yes, the details of IPO, org structure, team structure, how does that work? We do from a benchmarking perspective. You know, what I'll tell you, 30 years in the industry, there's no ideal. There's no right answer. Shockingly, when I came to FP Transitions, one of the cool things I thought I would see is, okay, I get to look at the actual data and see what all these people's businesses look like in aggregate, and my assumption was that there are people that do it differently but do it better. And what I found is that if you boil the ocean down, it is essentially one advisor, one support person, and that's the magic sauce. I did not think that was gonna be the case. I thought you could build structure in there and get more efficient, but the data does not support that suggestion. There are outliers. There are definitely certain scenarios where people have figured out how to do it better, and you can see that in the data, but it's not wide enough to say that there is one special answer. It's more unique to what works for you and your team and how you can best support that. But we can certainly look at, and we do coach to, what are compensation methodologies that work well or best? Depending on what you're trying to build and how you wanna support that. And in some of those kind of more higher level kind of consulting where we're speaking more frequently, maybe quarterly, we can talk through org structure and how that's gonna kind of change over time, kind of generally about compensation structure. Certainly we have a lot of conversations with our clients about, oh, we're implementing Diamond Teams or EOS or kind of some of the more common things. So we can speak anecdotally about a lot of the trends that we're seeing, even if we're not gonna tell you specifically, this is how you structure your Diamond Team. Yeah, I think Diamond Teams is one of the interesting, I love the concept. The problem I have with it is if you look at the actual comp structures and what wages would have to be paid for each of the players in those Diamond Teams and the numbers of clients they would have to support, it is, and the earnings that those groups would have to get down to the bottom line, it's hard to make the numbers work. You have to have about two, well, 300 to 500 clients per Diamond Team. And that, you know, can it work? Yes, and I've seen people do that. Problem is, is not many are getting to that 300 clients, 500 clients per Diamond Team. Yes, in the back. How much of the valuation or is there a way to determine how much of the multiple is related to the employees, like key employees, tenure, G2, is there a way to identify how much of that is attributable to one of the staff itself and that's employees? So you're saying can we carve out the enterprise value as a separate component? In theory, yes, a little bit harder in practice than in theory. You know, again, there's some sort of fundamental truisms of our business that set some boundary walls, in my mind. 100 clients per advisor, 150 clients per advisor, right? So you can only, with a single advisor, you know, now it's dependent upon how wealthy a client are you working with and what are your fees and how much profitability do you have to get to the bottom line, under what cost structures, right? So now I've put you in a pretty tight box. So, the coaching we provide is, is more around that concept of how do you make that work for you? And how do you value growth versus profitability, especially in the firm? You talked about the one extreme of a firm that isn't growing and there's a community thing is what about a firm that is growing but isn't having those 40, 50 margins that the older firms have? Great question. Obviously there are ebbs and flows in value that are tied to the investment in the business and those are choices as business owners, as you all are impacting the business as owners in the businesses, especially as the businesses get more complicated. You know, there are going to be times at which value actually is negatively impacted by what's happening in the business, the investment you're making and staff to grow. Again, you go back to that 150-ish clients per advisor, well, the next 150 you have to add, you're gonna have to pull in a new advisor. And you talk about how do you value what a G2 potentially brings to the table, well, it's that, whatever that 150 times the assets times the fee, that's the revenue that you're gonna get. What's the profit margin off of that after you compensate that G2? That's what's driving all that. So yes, we could in theory calculate what value add is there for a next-generational advisor coming into the business. Again, from a theoretical standpoint, is it that directly tied together? Ultimately, what happens when you sell the business is price, right? We're gonna value it and say it's worth X. That's our opinion. But if you can go out and sell that business and the G2s go with it, would somebody pay more for that business? Potentially, yes. So this is kind of back to where, you know, valuation is kind of one part art, one part science, right? So we're looking at the big picture and not just putting a multiple on it. And then we're going back to those questions of, you know, purpose, standard, premise, and thinking about, you know, how do those cash flows change over time? What is the projected future benefit of making these investments short-term for long-term? You know, what is your sustained growth over time? And how likely is that to continue? You know, if you have 35% growth year over year, that feels like an unsustainable number long-term, right? The investments you would have to make to sustain that would really impact that bottom line profitability pretty, you know, drastically. So again, this is the kind of the big picture look at the valuation where some of these questions of, well, does A always mean B? Not necessarily easy to say. And also, we are right at 1020, yeah. Perfect. Thank you all. Appreciate it. Thank you. We are here through the rest of the conference. So if you have any questions, or if you didn't get a question answered, obviously feel free to come out and talk.

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