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Unlocking potential: How wealth management firms create transferable value

Aug 11, 2023

The pursuit of transferable value lies at the heart of every business owner’s goals, especially in the wealth management industry.

When a firm operates at its fully optimized and high-performing level, or prime, it signifies the creation of maximum transferable value. Unlike mere profit generation, transferable value goes beyond financial metrics and delves into the core attributes that enable a firm to function effectively even without its principals.

Understanding transferable value in wealth management firms

In the realm of wealth management firms, transferable value is a multifaceted concept that goes beyond traditional financial measurements. While healthy profits and high revenues are essential, they do not necessarily guarantee a firm’s prime state. True transferable value lies in a firm’s ability to continue operations seamlessly even if the principals were to depart. This resilience stems from the firm’s well-defined processes, robust infrastructure and a strong culture of teamwork and collaboration.

To assess a firm’s transferable value accurately, owners must ask themselves critical questions. Will the firm sustain its cash flow without significant disruptions if the principals were to permanently leave today? Who would assume leadership in the absence of the principals? Are all stakeholders aligned toward a shared vision and objectives, and are essential business processes optimized, standardized and well-documented?

Value drivers: The foundation of transferable value

Building transferable value starts with identifying and optimizing the firm’s “prime attributes,” or value drivers. These attributes represent the key characteristics that contribute to the firm’s success and long-term growth. By defining, monitoring and enhancing these value drivers, firms can ensure a seamless transfer of ownership without compromising cash flow.

Examples of value drivers include adaptability to changing market dynamics, cross-organizational alignment, client-centricity and a culture of continuous improvement.

Wealth management firms with strong prime attributes often command higher multiples on their earnings before interest, taxes, depreciation and amortization (EBITDA) than those with weak or nonexistent prime attributes. The ability of these attributes to positively impact cash flow and continue contributing to it under new ownership positions such firms as attractive investment targets.

The characteristics of firms in prime

Firms operating in their prime state exhibit common characteristics that set them apart as high-performing and future-ready organizations.

One of the key features is their commitment to fostering effective teamwork across all levels. Employees in these firms are united by a clear vision, shared goals and common values, creating a strong sense of purpose and alignment throughout the organization.

Furthermore, firms in prime display a remarkable ability to respond quickly to market shifts and changing client needs. Their agility enables them to seize opportunities and adapt swiftly to industry disruptions, reinforcing their position as leaders in the wealth and asset management landscape.

Understanding transferable business value

The notion of “transferable value” goes beyond traditional economic metrics and embraces a broader perspective of organizational worth. While financial indicators like revenue, profit and market share are essential, prime firms recognize that other forms of value contribute to overall success and long-term sustainability.

These intangible factors may include time and cost savings achieved through streamlined business processes and modernized technology, employee growth and intellectual property creation, and client satisfaction and engagement.

Defining transferable business value

Prime organizations define transferable business value through a tailored approach that aligns with their unique circumstances. Creating a clear vision and specific objectives that resonate with a strong set of core values acts as a North Star guiding the firm toward its ultimate goals. Tracking progress through well-defined metrics and targets enables firms to stay on course and monitor the impact of their efforts.

Creating cross-organizational alignment

Achieving optimal transferable value requires a unified understanding of the firm’s vision, goals and objectives across all departments. Prime firms establish cross-organizational alignment that ensures every team and individual comprehends their contribution to the overall value chain. This transparent and communicative environment fosters trust and collaboration, enabling the organization to operate cohesively toward a common goal.

Focusing on high-impact areas

Prime organizations concentrate their efforts on areas that have the most potential to drive their objectives forward. By identifying and addressing these high-impact areas, high-performing firms maintain continuous alignment and progress towards their goals. The steps taken to improve these areas depend on each firm’s specific objectives and circumstances, but the key is to ensure that every part of the organization moves in unison.

Overcoming cultural barriers

A firm’s culture plays a significant role in determining its ability to become a higher-performing organization. Culture is an influential force that either supports or hinders the desired behaviors driving success.

High-performing organizations like Amazon, Google, and others excel in creating a culture that embraces client focus, adaptability, alignment, teamwork, collaboration, innovation and risk-taking. If a firm’s culture does not align with the desired behaviors, addressing cultural barriers becomes essential for achieving true transformation and sustainable success.

The journey to prime

Prime is not an endpoint but rather an ongoing journey toward operational excellence. Operating in their prime state empowers firms to enhance productivity, agility and resilience, leading to continuous growth and value creation.

How Wipfli can help

It’s essential to recognize that prime firms are not necessarily at the pinnacle of success but have achieved a state of alignment where technology, talent, operations and processes work cohesively to drive optimal performance. Wipfli’s professional team is prepared to help wealth and asset management firms develop and implement plans for growth that enable them to reach and thrive in a state of prime.

Learn more about our services for the wealth and asset management industry.

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Paul T. Lally
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