Most advisors spend decades building a practice based on a solid reputation with a core clientele. But principals of RIA and wealth management firms who hope to eventually sell their businesses and retire comfortably are in for a rude awakening, because despite those relationships they still lack the enterprise value to make a deal worthwhile, says Dallas, TX.-based Fiduciary Network.

In a new report, "Creating, Measuring and Unlocking Enterprise Value in a Wealth Manager," released on June 14, the Fiduciary Network gives advisors a wake-up call about their real prospects for a payoff after years of working on their businesses. A lot of wealth management firms run unprofitable practices, says Mark Hurley, president and chief executive officer of Fiduciary Network. After covering the firm's expenses, the owner's earnings fall short of the prevailing market salary they would earn as an employee at a larger firm. "In terms of finding someone to replace you and make less, they won't step into your shoes for the pleasure of doing that," Hurley says.

Hurley, who has a longstanding reputation for generating controversy, points out a couple of shortcomings to the fee-based and fee-only business models that dominate the industry. Many firms that collect fees nevertheless have to sell products to remain profitable. Also, there is no hard evidence that suggests that a fee-based firm

There are seven critical steps. First, recruit and retain successors, and give them clearly defined career paths. Next, institutionalize the firm's relationships, so clients associate the brand with the entire company and not just the founder. Also, build a client base that is profitable, and demographically diverse. Next, market the firm as a brand that has evolved from the founder's reputation, so new clients will still be attracted to the firm. Change the governance structure so that eventually critical decisions get input from shareholders. Create a robust culture of compliance, because a damaged reputation can sink a firm. Finally, reinvest in the business.