The RIA sale price hides in the owner's salary line

An advisory firm with about $5 million in annual revenue went to a sale showing $1.5 million of adjusted profit, and in the sixth week of due diligence the buyer recast the number to $1.2 million. The $300,000 that came off was the owner's own compensation line — or, more precisely, the distance between the $400,000 she paid herself and what replacing her would actually cost. Financial Planning published the account this month as an opinion column, written by an author who has spent years working with RIA sellers while buyers analyze their financials, and the piece is careful to say the owner had done nothing dishonest; she had simply never priced her own job.

Private equity has made independent advisory firms genuinely sellable — demand is strong, prices are high, and owners reasonably expect top dollar — so when the buyer's team reads the financials and the price comes down, a deal that looked secure begins to come apart. The column puts the cause, often, on a single line: the seller's own salary. The buyer is underwriting the firm that will exist without the founder inside it; the seller's schedule was built for the firm that exists with her inside it, and that distance is the whole of the disagreement.

Received wisdom says to push adjusted EBITDA as high as it can justifiably go, because every dollar moved out of expenses and into add-backs is a dollar the buyer multiplies: personal expenses come off the P&L, conference travel and software testing get set aside, and last year's marketing hire becomes a one-time investment in growth. The column's claim is that this instinct, aimed at the owner's own pay, runs the other way — a lower, defensible profit is the more reliable way to hold a sale price.

Every add-back on the schedule invites a question, but the owner's compensation is the only one where the buyer already knows the answer, because he has to hire whoever fills it. Founders assume one hire covers the job, but most of them, in the column's telling, are quietly doing two: running the firm and acting as lead advisor to the clients who generate a large share of its revenue.

Replace that properly and it takes two salaries rather than one — someone to run the business and someone to keep the relationships — which in the example runs about $700,000 a year against the $400,000 she paid herself. The extra $300,000 comes straight out of profit, so the defensible figure was $1.2 million and not the $1.5 million she had anchored on, and what happened next is the part a founder should sit with.

The buyer made the adjustment himself, in week six, after the seller had committed to the higher number, and finding it that late, by the column's account, left him wondering what else was soft. An add-back a seller can defend costs a few turns on paper; one she can only explain puts every other line in the model under suspicion, and suspicion does not stay where it started.

Advisor Growth Strategies' 2026 RIA Deal Room Report, cited in the column, puts the median high for RIA sales at 11.6 times EBITDA, and that multiple does the arithmetic in the example: $300,000 of overstated profit works out to roughly $3.5 million of price. A record median is a fact about deals that have already closed, which makes it useful for framing a negotiation and useless for defending a number. As this publication has argued, the 11.6x headline masks a two-tier market in which only prepared firms collect the premium, and AGS's own framing is that positioning, not size, decides which end of the range a seller gets — a replacement-cost line the buyer has to write himself is a positioning problem, and the cheapest one on the list to fix.

There is a second argument in the column that cuts against the reflex to pad: in deals of this shape, a large share of the money arrives after closing, so the headline price is not what the seller collects. If the back end is tied to the earnings the buyer has just reset, an inflated base costs the seller twice, shrinking the figure the multiple is applied to and handing the buyer a reason to reopen the rest — the overstatement was never worth what the anchor felt like it was worth.

The succession gap in advisory is at bottom a talent-economics problem, and here it surfaces on the P&L before it surfaces on the org chart. A replacement-cost line is a succession plan with a price on it. A founder who has named and costed the two people who will do her jobs walks into diligence with the math already done; one who has not meets it in week six, in the buyer's handwriting. That is the lesson our coverage of the 11.6x median keeps returning to: the number that sets an exit is fixed long before anyone signs anything.

The prescription is unglamorous and cheap: run the two-hire model and put the smaller number on the page before the process starts, so the buyer's analysis confirms the seller's rather than correcting it and the anchor set in week six is one the seller set herself. The sellers defending the fewest lines are the ones collecting the top of the range; watch the add-back schedule in the next deal book that reaches your desk.