Three Key Takeaways
Valuation expertise and RIA industry experience serve different purposes, and you often need both. Industry insight informs assumptions; valuation discipline ensures defensibility. One without the other creates risk.
In compliance, disputes, and buy-sell events, credibility matters as much as the number. Courts, regulators, and counterparties evaluate the expert, not just the analysis.
The hardest valuation problems aren’t mathematical—they’re judgment calls. Owner compensation, minority interests, and real-world transaction data demand experience at the intersection of valuation theory and investment management reality.
Sometimes You Need More than Esprit de Corps
In the late 1970s, Lotus built what was, by most accounts, a perfectly capable sports car. The Esprit was light, fast, and angular in a way that made it look futuristic, even by non-British standards. For most drivers, it did exactly what a sports car was supposed to do.
But sometimes, if you’re James Bond, you need more than the usual competency. The 1977 film “The Spy Who Loved Me” was the first to feature a Lotus as Bond’s go-to conveyance, and the first time anyone had witnessed a Lotus go full submarine to outrun the bad guys, and then launch a sea-to-air missile to finish them off.
Most valuation work for registered investment advisors happens on dry land. Routine planning. Periodic internal transactions. Annual updates that no one expects to be controversial. In those moments, many forms of expertise can appear interchangeable. Credentials look similar. Experience sounds relevant. Reports feel polished.
But occasionally, circumstances change. A tax filing draws scrutiny. A shareholder dispute surfaces. A buy-sell agreement is triggered. A regulator or a court asks not just for a number, but for the qualifications of the person offering it. That is when it becomes clear whether your valuation expert was designed only to look the part—or whether they were built to operate when the environment changes.
When Valuation Stops Being Academic
RIA owners often engage valuation professionals for strategic purposes, where precision matters but the audience is limited. In other situations, however, valuation becomes a compliance exercise, governed by external standards and reviewed by third parties who were not involved in the engagement and are not inclined to give the benefit of the doubt.
This is most apparent in regulatory and compliance-driven valuations, including:
IRS-qualified appraisals, such as those required for estate and gift tax filings, charitable contributions of closely held stock, and certain intrafamily transfers of equity or carried-interest arrangements
ERISA-mandated valuations, including ESOP transactions and annual valuations prepared for plan fiduciaries
In these contexts, valuation work is no longer judged solely by whether it seems reasonable. It is judged by whether it meets clearly articulated standards, whether the assumptions are consistent with professional norms, and whether the expert performing the work is demonstrably qualified to do so.
Add to this the reality of litigation, shareholder disputes, and internal ownership transitions, and the stakes rise further. In court, judges are not simply evaluating conclusions; they are evaluating experts. The credibility of the valuation rests as much on the qualifications and experience of the professional as it does on the analysis itself.
In short, valuation stops being an opinion and becomes evidence.
Two Traditional Types of Experts
When RIAs look for valuation help, they tend to encounter one of two types of professionals. Each brings real strengths. Each, standing alone, is incomplete.
The industry expert is deeply familiar with the business of investment management. These professionals understand how RIAs actually operate—how fees are negotiated, how margins evolve, how organic growth differs from market growth, and how buyers and sellers think about value in real transactions. Their perspective is grounded in lived experience rather than abstraction.
That perspective is invaluable, particularly in an industry where rules of thumb are tempting but often misleading. Industry experts tend to have a strong intuitive sense of what a firm “ought” to be worth and why similar firms can command very different outcomes in the market.
But industry expertise is not the same as valuation expertise. Many industry professionals are optimized for pricing rather than valuation. They may not routinely value minority interests, may not be trained in valuation standards, and may not be accustomed to producing reports that must withstand IRS review, DOL oversight, or judicial scrutiny. Investment bankers who dabble in valuation often fall into this category. Their insights are useful, but their work product may not meet the standards required in contested or regulated settings.
On the other side of the spectrum is the valuation expert. Credentialed valuation professionals are trained in the technical aspects of valuation: standards of value, levels of value, the thinking of hypothetical buyers and sellers, and the formal requirements of qualified appraisals. They are accustomed to working in tax, litigation, and compliance environments where documentation and defensibility sometimes matter as much as the final number.
However, valuation expertise without industry depth has its own limitations. Generalist valuation professionals may only encounter an RIA occasionally. When that happens, there is a natural tendency to import assumptions from other industries—manufacturing, healthcare, software, or real estate—each of which behaves very differently from investment management firms. A report can be technically sound and still miss the economic realities that actually drive value in an RIA.
We have seen well-written, carefully structured valuation reports fall apart because the assumptions did not survive contact with industry reality.
Buy-Sell Agreements: Where the Gap Becomes a Problem
Nowhere is the need for both industry understanding and valuation discipline more apparent than in projects rendered pursuant to the requirements of buy-sell agreements.
Buy-sell provisions are designed to function precisely when interests diverge. They embed opposing economic perspectives by construction: the interests of continuing owners and the interests of departing owners. Most agreements specify a standard of value—often fair market value—but leave considerable ambiguity about how that standard should be applied in practice.
When a buy-sell agreement is triggered, the valuation professional is asked to do something subtle and difficult. They must understand how RIAs transact in the real world while also applying a neutral, standards-based valuation framework. They must reconcile buyer and seller perspectives without advocating for either. And they must produce a report that is not only technically defensible but capable of persuading both sides that the process was fair.
In that sense, a buy-sell valuation is less like pricing a transaction and more like writing a constitution for disagreement.
This is why it is worth thinking carefully about how valuation experts are specified in shareholder agreements. Credentials matter. Industry experience matters. The ability to clearly explain and defend conclusions matters. A valuation professional who lacks any one of these attributes may unintentionally introduce friction rather than resolve it.
Where the Work Actually Gets Hard
The most challenging valuation issues in the investment management industry rarely arise because the arithmetic is wrong. They arise because the assumptions are fragile.
Determining what constitutes reasonable owner compensation in an owner-operator firm is not a mechanical exercise. Distinguishing returns to labor from returns to capital requires judgment informed by industry exposure. Valuing minority interests in businesses that distribute most of their cash flow requires a nuanced understanding of both economics and control. Reconciling transaction data with intrinsic value requires an appreciation for why buyers pay what they pay—and why those prices are not always transferable.
These are not problems that can be solved with templates. They are solved through experience at the intersection of valuation theory and industry practice.
A Practical Selection Guide
For RIA owners—and for the attorneys and fiduciaries who advise them—a few practical questions can help distinguish surface-level expertise from durable capability:
Do they regularly value investment management firms?
Will they sign a qualified appraisal for tax or ERISA purposes?
Do they routinely value minority interests?
Have they defended their work in disputes or litigation?
Can they explain their conclusions clearly to non-valuation professionals?
The goal is not to find the flashiest expert. It is to find one prepared for the environments you may not face often—but cannot afford to get wrong.
Getting in the Esprit
While I can’t pretend that my professional life is anything like 007’s, we both pursue our craft with the help of tools to help in any situation. Bond’s exploding watch, rocket skis, and submarine car may be flashier than an appraiser’s common sense, informed judgement, and reasonableness – but we both rely on what’s appropriate given the circumstance. And all of the tools in our toolbox work best when we can lean both on our judgement as professionals in the valuation community, and as specialists with a depth of experience in the investment management space.
About Mercer Capital
We are a valuation firm that is organized according to industry specialization. Our Investment Management Team provides valuation, transaction, and consulting services to wealth managers, asset managers, trust companies, and related enterprises.