For a more useful answer than, “it depends” let’s make a few assumptions.

Assumptions:
• You charge 1% AUM
• 50% of that hits your paycheck
• You keep 95.5% of your clients every year (meaning on average you keep clients for 15 years)
• Your portfolios earn 7% after fees
• A retired client withdrawal’s 4% of their funds

Our prospects have been averaging $953.94K in available AUM. Let’s round that up to an even $1,000,000. Below we outline what happens when your account balance grows 3% (7% growth – 4% withdrawal), you charge 1%, and take home 50% of that for 15 years.

In total you would collect $92,994.57 over the course of 15 years.

How much would you pay for a bond that offered to pay a total of $92,994.57 over the course of 15 years in the above coupon payments?

The question becomes what discount rate do we use to value this asset?

Our own portfolios earn 7%, so we need to at least earn that much. But then the question becomes how much we charge due to the effort involved in having a client. Do we charge 1% more? 8% more? or 3x more?

If the income from clients were a tradeable bond, the above NPV is how the market might value them.

Unless you have an investment that yields over 90% a year, every year for the next 15 years…..