Taking a break from our succession planning series, we’re turning our attention to the RIA valuation implications of the pending Great Wealth Transfer.

Over the next two decades, an estimated $68 trillion is expected to transfer from Baby Boomers and Gen X to Millennials and Gen Z in what has been dubbed the “Great Wealth Transfer.”

For RIAs and trust companies, this transition presents both opportunities and challenges that directly impact firm valuations. As client demographics evolve, investment management firms must adapt to retain AUM and navigate the valuation implications of this seismic wealth shift. At Mercer Capital, we believe proactive strategies can help these firms not only preserve but enhance their value during this period of change.

The Valuation Stakes of the Great Wealth Transfer

The Great Wealth Transfer is reshaping the RIA landscape. According to a 2023 Charles Schwab survey, 75% of RIAs are already engaging with clients’ heirs to ensure continuity, yet many firms remain unprepared for the preferences of younger generations. Millennials and Gen Z, who will inherit this wealth, prioritize digital engagement, sustainable investing, and personalized financial planning. Failure to connect with these heirs risks significant AUM attrition, which can erode firm value, as AUM directly impacts RIA revenue, profitability, and value.

From a valuation perspective, RIAs face two critical challenges. First, client relationships — often tied to their advisor and not the RIA itself — may not transfer seamlessly to younger generations, potentially reducing the firm’s enterprise value. Second, the rise of fintech platforms and robo-advisors appeals to tech-savvy inheritors, threatening traditional RIAs with client losses if they fail to modernize.

Strategies to Protect and Enhance RIA Value

To navigate these challenges, RIAs can adopt several strategies to align with the needs of next-generation clients while safeguarding their valuations:

1. Engage Heirs Early Through Financial Education

Building relationships with clients’ heirs is critical. RIAs can offer workshops, webinars, or one-on-one consultations to educate younger generations on wealth management, estate planning, and tax strategies. By fostering trust, firms can strengthen client retention, thereby preserving AUM and firm value.

2. Embrace Technology for Scalability

Younger clients expect seamless digital experiences. Investing in client portals, AI-driven analytics, and CRM systems can enhance efficiency and client satisfaction. These investments not only attract tech-savvy inheritors but could also improve EBITDA margins by reducing the need for additional client support staff.

3. Incorporate ESG and Alternative Investments

Millennials are drawn to environmental, social, and governance (ESG) investing, with 64% expressing interest in sustainable portfolios, per a 2024 Morgan Stanley report. By offering ESG-focused strategies or alternative assets, RIAs can differentiate themselves to gain more business from next-generation investors.

4. Balance Personal and Enterprise Goodwill

Valuation often hinges on the distinction between personal goodwill (tied to individual advisors) and enterprise goodwill (tied to the firm’s brand and systems). To maximize value, RIAs should institutionalize client relationships through team-based advising and robust succession plans, reducing dependence on founding advisors and enhancing salability.

Looking Ahead: Valuation Opportunities in 2025

As the Great Wealth Transfer accelerates, RIAs that proactively adapt will be best positioned to thrive. The M&A market remains robust following a record-setting quarter for deal volume. By investing in technology, engaging heirs, and aligning with the values of younger clients, RIAs can turn the challenges of wealth transfer into opportunities for growth.

Our investment management group specializes in helping RIAs navigate these complexities through comprehensive valuation analyses and strategic guidance. Whether you’re planning for succession, exploring M&A, or seeking to optimize your firm’s value, our team can provide the insights you need to succeed in this transformative era.

About Mercer Capital

We are a valuation firm that is organized according to 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, and related investment consultancies.