How to Increase RIA Valuation by Leveraging Technology

RIA valuation takes into account many factors, but by focusing on  technology, advisory firms can build a foundation on which to improve other aspects of the organization.

Despite COVID-19, M&A activity and valuation levels show promising signs.

M&A activity for RIAs rebounded sharply in the third quarter, hitting record levels.

And according to the ECHELON Partners RIA M&A Deal Report, the report states “we continue to see strong valuations for RIA firms, with larger and more established firms engaging in M&A activities—both as buyers and sellers.”

That said, there is still a pandemic. A prolonged market downtown could hurt finances, shifting the dynamics from what some say had been a "sellers market" to that of a buyer's.

Technology at the Forefront

Though market uncertainty remains high, RIAs have adapted to this "new normal".

Whether it's virtual meetings or adopting cloud-based portfolio accounting  platforms like TAMP1,  technology has shown its importance.

Improved process efficiency and risk mitigation help RIA valuation, and they will help your firm maintain value relative to peers if market conditions change.

Even if you're not ready to make ownership changes, organizational improvements (that increase valuation) cannot hurt.

4 Ways to Increase RIA Valuation through Technology

Adopt a Digital-First Strategy

Having the latest and greatest systems will increase RIA valuation more than sticking with older technology.

It's like selling a house: you'll command a higher asking price when you invest in your home first.

But if you sell as is -  with leaky pipes, dirty carpets, and outdated appliances - the buyer will demand a lower price, citing the home's imperfections.

Thus, the best way to increase valuation is by adopting digital solutions, moving away from legacy systems.

The push for digital began well before the pandemic, and InvestCloud Founder and CEO John Wise has been one of the industry's leading advocates.

Pre-pandemic, he wrote a compelling article on why RIAs need digital transformation. The presence of COVID-19 further strengthens the case for digital.

Going digital is about having technology that allows you and your team to operate from anywhere. You shouldn't have to rely on in-house servers and someone being physically present at the office to keep everything running.

Likewise, a digital-first strategy is about making things better for the clients, which will be explained in greater detail below.

The first step is to think about what systems you have:

  • Will the technology you're currently using serve the firm's long-term interests?
  • Do your systems integrate and interact well with each other?
  • Are you paying for unnecessary software and applications?

Improve Process Efficiency

Leveraging technology means implementing solutions that allow for faster turnaround times, better data integration, and fewer errors.

And when it comes to producing reports, you need a solution that gives you easier and better views of the data.

To facilitate some of these process improvements, you should make use of automation.

Automation helps increase turnaround times and reduce errors, as mentioned above. It also saves advisory firms time and money not having to do those tasks as slowly and inaccurately as before.

Leveraging technology should enable you to focus on core competencies and higher-value activity.

These upgrades will help RIA valuation because it shows the organization is positioned to focus on revenue-generating activity, which the interested parties want to know about.

Focus On the Client Experience

We have long promoted technology as a means to enhance the client experience.

Our blog posts about attracting the next generation of clients and what clients really want from you are examples of such promotion.

Furthermore, check out these 50 stats that prove the value of the client experience. Mentioned in those stats include increased revenue and financial value of a company by making those investments in the client experience.

As part of increasing valuation, you want to show that you have a good setup in place, from the moment a prospect becomes your client and throughout the duration of the relationship. High client satisfaction leads to longer-lasting relationships and ultimately more revenue.

Think about how technology can make for a better experience in some of these areas:

  • Client onboarding
  • Communication
  • Client data management
  • Report delivery
  • Mobile and real-time access to investment portfolio details

As part of a digital-first strategy and mindset, you can find solutions in the areas mentioned above that benefit the client. Our TAMP1 platform is one of those solutions.

Implement Cybersecurity Measures

The latest and greatest technology is wonderful, but if it's not secure, then the systems can be a liability.

Even worse, compromised information as a result of a data breach may lead to sanctions from regulatory bodies or lawsuits on behalf of clients.

RIA valuation takes governance into account, and being proactive in technology risk mitigation helps.

Make sure various security measures are in place, be it usage of firewalls, secure networks, VPNs, antivirus software, multi-layered encryption, multi-factor authentication for passwords, etc.

If third-party vendors are involved in your technology solutions, make sure they are reputable and  follow security best practices, as indicated by their licenses, qualifications, and audits from industry regulators.

Also, there should be written and formal documentation of security practices, and team members should be aware of these policies. After all, cybersecurity is not just an IT problem.

Existing organizational competency goes a long way when it comes to RIA valuation.

Increased Valuation Made Reality

Technology indeed plays a role in the valuation of an RIA.

Adopting a digital-first strategy leads to more efficient processes and a better client experience, contributing to revenue generation.

Of course, revenue generation is what really attracts the interested parties.

That excitement for revenue should be backed by organizational efficiency, minimized costs, and good governance, which includes cybersecurity protocol.

Even if you're not ready to sell or change ownership, it never hurts doing things to strengthen your organization's fundamentals.

And if you want to sell and look more attractive to buyers, leveraging technology helps you stand out and increase your RIA's valuation.

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