Key Takeaways
AI spending initially reduces reported EBITDA. Most subscriptions, personnel costs, and other recurring expenses associated with AI are ordinary operating costs, not valuation add-backs.
The valuation benefit depends on the return. AI can enhance value if it enables an RIA to serve more clients, delay incremental hiring, improve organic growth, strengthen retention, or reduce operating risk.
Spending is not the same as adoption. Buyers and valuation professionals will look for evidence that AI has become part of the firm’s operations and produces measurable results.
Last year, we considered the potential implications of artificial intelligence for the RIA industry in You Can’t Spell RIA Without AI. At the time, much of the discussion centered on what AI might eventually do for investment management firms. One year later, the conversation is becoming less theoretical and more expensive.
According to recent research from Cerulli Associates and Vista Equity Partners, average AI-specific spending among surveyed wealth managers is expected to increase from $237,000 in 2025 to $494,000 in 2026. Overall technology spending is projected to rise from $2.9 million to $3.3 million per firm. The survey consisted of 68 relatively large RIAs with average AUM of approximately $18 billion, so these dollar amounts are not directly applicable to most firms. Still, the direction of travel is clear: RIAs are allocating more resources to AI and related technology. (Barron’s)
This raises a fairly straightforward valuation question: Does spending more on AI make an RIA more valuable, or does it merely reduce EBITDA?
The short answer is that it can do either.
The Initial Impact Is Usually Lower EBITDA
Most AI spending is an operating expense. Software subscriptions, data services, consultants, employee training, cybersecurity, and ongoing oversight all reduce current-period earnings. If an RIA spends an additional $250,000 on these items without a corresponding increase in revenue or reduction in other expenses, EBITDA declines by the same amount.
That does not necessarily mean the investment reduces value. The value of an RIA is based on its expected future cash flows and the risks associated with achieving them, not simply its current-year EBITDA margin. An investment that depresses earnings today may enhance value if it produces higher growth, greater operating leverage, or lower risk in subsequent years.
The relevant question is not whether AI spending lowers EBITDA. It generally does, at least initially. The better question is what the firm receives in return.
Where AI Can Create Value
The most obvious potential benefit is improved employee productivity. AI can reduce the time required for meeting preparation, note taking, client correspondence, data entry, research, compliance reviews, and other routine functions. The resulting efficiency may not lead to immediate headcount reductions (and probably should not in a growing firm), but it can allow the RIA to serve more clients without adding personnel at the same rate.
The Cerulli findings bear this out. Despite the projected increase in AI spending, most surveyed firms also expect to add employees. Approximately 73% plan to hire junior advisors, 67% expect to add client service associates, and 56% anticipate hiring senior advisors over the next two years. At least for now, RIAs appear to view AI as a means of increasing employee capacity rather than replacing their workforce.
Schwab’s 2026 RIA Benchmarking Study reaches a similar conclusion. Most participating firms already use AI for basic administrative and marketing activities, but top performing firms were more likely to use it for strategic purposes. For example, 31% of top performing firms reported using AI to automate time consuming workflows, compared with 19% of other firms.
Efficiency is only one potential source of value. AI may also contribute to:
Faster and more consistent client service
Better documentation of client relationships and firm processes
More efficient prospecting and marketing
Improved compliance monitoring
Greater consistency across offices and advisory teams
Reduced dependence on individual employees
Additional capacity for organic growth
As discussed in Organic Growth Is Becoming the RIA Valuation Differentiator, buyers place greater value on growth that is measurable, repeatable, and transferable. AI can support that kind of growth, but it does not create it by itself. A new system that generates more leads has limited value if the firm cannot convert them. A meeting assistant that saves time is only valuable if that time is redeployed productively.
What Will Buyers and Valuation Professionals Look For?
AI spending is unlikely to support a premium valuation merely because management characterizes it as an investment. Buyers will want to understand what the technology does, how broadly it is used, and whether it has improved the economics or risk profile of the business.
Relevant considerations will include:
Adoption. Are employees actually using the technology, or is the firm paying for tools that have not been integrated into its workflows?
Capacity. Has AI increased the number of clients or assets each advisor and support employee can serve?
Expense savings. Has the firm eliminated redundant systems, reduced outsourcing costs, or delayed incremental hiring?
Growth. Has the technology improved lead generation, conversion rates, client referrals, or asset retention?
Recurring costs. What portion of the expenditure represents one-time implementation costs, and what portion will continue indefinitely?
Governance. Does the firm have appropriate controls over client information, data privacy, model output, compliance, and employee use?
Transferability. Are the resulting processes documented and institutionalized, or do they still depend on one technologically proficient employee?
The answers affect both sides of the valuation equation. Demonstrated cost savings or additional revenue can increase expected cash flow. Better documentation, more consistent service, and reduced dependence on key employees can reduce risk and potentially support a higher valuation multiple.
The reverse is also true. Poorly controlled AI usage can create compliance, confidentiality, reputational, and operational risks. A buyer may also view an RIA that has significantly underinvested in technology as having deferred expenses, even if its historical EBITDA margin looks attractive.
Not Every AI Expense Is an Add-Back
In a transaction or valuation context, owners may be tempted to treat AI implementation costs as nonrecurring expenses and add them back to EBITDA. Some truly one-time costs, such as an isolated conversion fee or implementation project, may warrant consideration.
Recurring software subscriptions, ongoing data costs, required oversight, and regular employee training are different. If these expenses are necessary to operate the business at its current level, they are part of normalized operating expenses. Labeling an expense as an “investment” does not automatically make it an add-back.
Projected efficiencies should receive similar scrutiny. Forecasts that assume AI will save thousands of employee hours or eliminate future hires should be supported by actual usage data, workflow studies, or early operating results. Otherwise, the anticipated return remains speculative.
Finding the Return on AI
AI is becoming another dimension of the longstanding tradeoff between current profitability and investment for future growth. The firms that spend the most will not necessarily receive the greatest valuation benefit. Some will invest in tools that employees barely use, duplicate existing capabilities, or create new oversight burdens. Others will use relatively modest investments to increase capacity, improve client service, and build more scalable operations.
For RIA owners, the objective should not be to maximize AI spending or preserve every dollar of current EBITDA. It should be to identify specific operational problems, invest selectively, and measure the results.
Ultimately, AI will enhance an RIA’s value only to the extent that it improves future cash flow or reduces risk. Until those benefits become visible, it remains what it first appears to be on the income statement: an expense.
About Mercer Capital
We are a valuation and advisory firm organized by industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to a client base consisting of asset managers, wealth managers, independent trust companies, broker-dealers, PE firms, and alternative managers.