A recurring-income multiple prices the ongoing fees your client bank generates. An EBITDA multiple prices earnings before interest, tax, depreciation and amortisation, so operating costs matter directly. Buyers choose the basis that fits what they are acquiring; the same practice can produce different figures under the two approaches.
Two firms with identical recurring income can receive offers built on entirely different arithmetic. One is valued as a client bank: a multiple of its recurring income, with the buyer assuming most of the cost base disappears after completion. The other is valued as a business: a multiple of its earnings, with the buyer assuming the cost base largely stays. Which method a buyer applies to your firm is not a matter of taste. It follows from what they are actually buying, and it can move the headline number by a wide margin in either direction.
This article sits within the what your practice is worth pillar, and it deals with the single biggest fork in the valuation road: recurring income multiples on one side, EBITDA multiples on the other.
The two methods in plain terms
A recurring income multiple values your ongoing adviser charges as an income stream. If your firm generates £400,000 a year in recurring income and a buyer offers 3.5 times, the headline is £1.4m. The buyer is not really buying your company; they are buying the future revenue from your clients, and they intend to service those clients through their own infrastructure. Your office lease, your staff, your systems and often your own role are assumed away. That is why the method dominates smaller deals, and why it pairs naturally with an asset sale of the client bank rather than a share sale. The mechanics are covered properly in recurring income multiples explained.
An EBITDA multiple values your profit. EBITDA is earnings before interest, tax, depreciation and amortisation: broadly, the operating profit the business throws off before financing and accounting adjustments. A buyer applying an EBITDA multiple is buying a functioning business, cost base included. They expect the firm to keep running after completion, with its own staff, its own management and its own margin, whether or not you stay.
The methods are not two routes to the same answer. They reward different things, and for most firms they produce genuinely different numbers.
Where the switch happens
There is no rulebook that fixes the boundary, and no published FUM or profit figure at which the switch happens. In practice buyers start reaching for EBITDA when a firm looks like a business rather than a practice: enough scale, enough infrastructure and enough profit for it to be worth valuing as a going concern rather than as an income stream. Gunner & Co's market data shows recurring income is the basis for over 80% of the offers it analyses, with profit-based valuations the minority, which tells you how high up the market the switch really sits.
Scale alone does not do it. The other requirement is a real management structure: advisers who are not the owner, someone running operations, a business that would still open its doors on Monday if the principal retired on Friday. A firm with substantial FUM where every client relationship runs through one adviser-owner will still be valued, in substance, as a client bank. A smaller firm with three advisers, a practice manager and documented processes may well attract EBITDA-based offers despite its size.
The same firm can also receive both. Larger buyers, including the private-equity-backed consolidators that now account for much of the deal flow, will often model an acquisition both ways and anchor on whichever suits their integration plan. The FCA's multi-firm review of consolidation in the advice and wealth management sector, published on Fri 31st Oct 2025, examined how acquisitive groups are managing that growth, flagging debt-funded acquisitions and the pressure on regulated firms required to pass cash up to service group debt. Groups built and funded that way think in EBITDA because their own investors do.
Why the two methods disagree
The disagreement is structural, not cosmetic. A recurring income multiple ignores your costs. An EBITDA multiple is made of them.
Take two firms, each with £500,000 of recurring income. Firm A runs lean: one adviser-owner, one administrator, £150,000 of costs, £350,000 of profit. Firm B carries a fuller structure: three advisers, a paraplanner, an office, £380,000 of costs, £120,000 of profit.
On a recurring income basis the firms look identical. At 3.5 times recurring income, both are worth £1.75m, because the method never asks what it costs to produce the income. On an EBITDA basis they diverge sharply. Firm A's £350,000 of profit at, say, 6 times gives £2.1m. Firm B's £120,000 at the same multiple gives £720,000.
Notice what happened. The lean firm is worth more under EBITDA; the fully-staffed firm is worth more under recurring income. That is the general pattern. Recurring income multiples flatter firms with heavy cost bases, because the buyer plans to strip those costs out and so does not price them. EBITDA multiples flatter firms with high margins, because every pound of profit is capitalised at the multiple.
There is a wrinkle worth naming: adjusted EBITDA. Buyers rarely take the profit and loss account at face value. They normalise it, adding back the owner's above-market salary, personal expenses run through the business, and one-off costs, and sometimes deducting a market-rate salary for the management the owner has been providing free. In an owner-managed firm these adjustments can move EBITDA substantially in either direction, which is one reason clean, well-organised accounts matter long before a sale. The broader point that your data quality determines your price applies to financial records just as much as client records.
What each method rewards
Recurring income multiples reward the quality of the income stream itself. Persistency of client relationships, the proportion of income that is genuinely recurring rather than transactional, the age profile of the client bank, platform and provider concentration, and how cleanly the ongoing service agreements will novate to the buyer. Market pricing reflects this: Gunner & Co reported an average recurring income multiple of 4.2 times in the first half of 2025, up from a stable level of around 3.5 times across 2023 and 2024 and the highest point since 2018, driven in part by competition for well-prepared firms. What pushes an individual firm up or down within a range like that is the subject of the things that raise your multiple.
EBITDA multiples reward the business around the income. Margin, obviously. But also everything that makes the profit durable without you: management depth, adviser retention, documented processes, scalable systems, a compliance function that stands on its own whether the firm is directly authorised or an appointed representative. Under EBITDA, a cost is not automatically a bad thing. A second adviser reduces this year's profit but makes the remaining profit more valuable, because it no longer depends on one person. The method prices resilience, and resilience costs money.
That inversion trips owners up. Behaviour that maximises a recurring-income valuation, keeping costs skeletal and running everything yourself, actively damages an EBITDA valuation, because it produces a high-margin business with a single catastrophic dependency: you. Buyers pricing on EBITDA will either discount the multiple for key-person risk or restructure the offer so that a large slice sits in an earn-out contingent on your continued involvement. Deal structure and valuation method travel together, which is why the questions in earn-outs: the questions to ask before you agree to one become more pressing as firms move up the EBITDA end of the market.
Sitting near the boundary
If your firm sits near the crossover, with meaningful FUM, a healthy profit and at least the beginnings of a management structure, you have something smaller firms do not: a degree of choice about which valuation conversation you have. That choice is worth thinking about years out, not weeks out.
The first step is to run both calculations on your own numbers. Take your recurring income and apply the current market range. Then build an honest adjusted EBITDA: profit, plus your above-market drawings, minus a market salary for the roles you actually perform, and apply a sensible earnings multiple. If the two answers are close, the method matters less than the buyer and the structure. If they are far apart, you now know which story your preparation should tell.
If EBITDA gives the better answer, the work is to make the EBITDA case credible. That means management accounts a buyer can rely on, costs that are clearly business costs, and evidence the firm functions without your daily involvement. It also means accepting that the two or three years before sale may involve investing in people and systems that suppress profit in the short term while raising the quality, and the multiple, attached to what remains.
If recurring income gives the better answer, the work points the other way: persistency data, clean ongoing-service records, a well-documented client bank, and a realistic view of which clients will transfer. It may also point towards a different transaction shape altogether, such as an asset sale of the client bank rather than a share sale, or in some circumstances a structured asset sale to a national acquirer, where the price is expressed as a share of ongoing income rather than a capital sum, with payments commonly running many months. The trade-offs between those shapes are set out in asset sale or share sale: the choice that changes everything.
One caution for boundary firms: do not assume the buyer will use the method that favours you. Buyers model the acquisition their way, and a firm that presents itself on the wrong basis mostly signals that it has not prepared. Know both numbers, understand why they differ, and be ready to have either conversation.
The practical takeaway
Which method a buyer uses on your firm is largely determined by what your firm is: a client bank with an owner attached, or a business with a management structure. Small and lean points to recurring income; scaled and staffed points to EBITDA; the awkward middle gets modelled both ways. The methods disagree because one prices income and ignores costs while the other prices profit and therefore prices everything, including your own dependency risk.
The owners who do best near the boundary are the ones who worked out, well before going to market, which basis their firm shows best on and then spent the preparation years strengthening that case. If you want a number of your own to react to before doing any of that work, the free IFA valuation calculator produces an indicative sale range and explains the factors affecting it.