Financial advisor’s book of business is not a marital asset

In a Tennessee divorce case, an appellate court affirmed the judgment of the trial court that the husband’s book of business as a financial advisor for UBS is not a marital asset. The husband argued that that he did not own his book of business and that he had to provide future services to benefit from it. He did not engage a valuation expert nor present any value in court. The wife noted that the husband talked with another firm about joining it, which was evidence that the book of business had value. She engaged an expert who testified regarding two intangible assets: (1) any potential recruitment bonus the husband might receive from a new firm; and (2) the unvested retirement benefit he will receive if he retires from UBS or from another firm. The appellate court noted that the trial court did not abuse its discretion to accept or reject the testimony of a witness and it had a factual basis supported by the evidence. The opinion of the trial court that the book of business is not a marital asset is affirmed.

An analysis and full opinion of the case, Hollis v. Hollis, 2022 Tenn. App. LEXIS 250; 2022 WL 2348567, are available on the BVLaw platform.

Extra: For more on valuing this asset, see “Valuing a Financial Advisor’s Book of Business,” by Howard A. Buchler, J.D., in the December 2019 issue of Business Valuation Update.

Do fair value audit woes impact M&A?

A new study suggests that firms avoid obtaining intangibles via acquisition because they don’t want to face scrutiny from the PCAOB over impairment matters. The alternative would be to invest internally in corporate innovation for the intangibles. The paper, “The Effect of PCAOB Inspections on Corporate Innovation: Evidence From Deficiencies About the Valuation of Intangibles,” examines the economic consequences on corporate innovation when PCAOB inspections cite auditors for insufficient procedures in auditing the valuation of intangibles. The study found that audit deficiencies in fair value measurements trigger larger and timelier impairment of intangibles. But this dampens managers’ discretion to delay the recognition of losses. Of course, the timely recognition of impairments is the goal of the regulators, but managers may not want to admit that an acquisition fell short of expectations. But to think that accounting optics would materially alter overall corporate strategies may be a bit of a stretch by the study’s author. A “build or buy” option may not be feasible for certain intangibles, such as intellectual property.

What’s in a judge’s mind?

In divorce matters, the most important audience is often the trier of fact, so anytime you can glean insights from them is time well spent. A panel of three judges will take questions from attorneys and testifying experts during a session at the AAML/BVR Divorce Conference—where valuation experts and attorneys will meet over three days at the Venetian in Las Vegas (September 18-20).

The judges, Alan D. Scheinkman, Kerry R. Bensinger, and Charles J. Hoskin, will provide guidance to attorneys and experts regarding expert testimony, including:

• Supporting expert opinions;

• Excluding expert testimony;

• Analysis of competing expert opinions;

• What is effective and persuasive testimony and cross-examination; and

• Pitfalls—evidence of illegal activities including illegal financial activities (e.g., “perk” or fraud?), spoliation of evidence, etc.

The AAML is the American Academy of Matrimonial Lawyers. Conference attendance is expected to be half experts and half attorneys. To see the full agenda and to register, click here. Up to 20 CPE/CLE credits are available.

Mercer’s latest on restricted stock studies

Chris Mercer (Mercer Capital) has been writing a series of articles designed to provide a complete analysis of the historical restricted stock studies many business appraisers rely on for estimating a discount for lack of marketability (DLOM). Mercer’s latest article addresses an issue that is “rarely mentioned in the context of the studies—the impact of dividends on restricted stock discounts (RSDs).” He concludes that an analyst cannot use restricted stock studies to estimate a DLOM for a dividend-paying company. “Some level of dividends in an investment would mitigate the marketability discount for otherwise similar investments with no dividends,” he writes. “The expectation of larger future dividends relative to smaller future dividends would mitigate the marketability discount for the higher dividend-paying investment. This is just common sense.” To read his full article, click here.

Please take a short survey on financial benchmarking data

BVR is conducting a very short survey (four questions) on the sources valuation analysts use for financial benchmarking data. It will just take a few minutes, and we would greatly appreciate it. All responses are anonymous and confidential. You can take the survey if you click here. Thank you in advance!

NACVA’s ‘super conference’ starts today!

At press time, BVWire is in Salt Lake City for the start of the first major conference of the year, the Business Valuation & Financial Litigation Hybrid & Virtual Super Conference hosted by the National Association of Certified Valuators and Analysts (NACVA). The conference starts today, August 17, and runs through August 19. You can attend on-site or virtually, including on an à la carte basis. You can see the full agenda and register if you click here. The agenda looks very strong, and we’ll have some overview coverage in next week’s BVWire and detailed coverage in an upcoming issue of Business Valuation Update.

Global BV News: Key consideration for global cost of capital

During the recent ASA New York Fair Value Conference, Mike N. Moskowitz and Tushar Shah, both with EY, discussed global valuations with an emphasis on the cost of capital. One important point they made concerns geography—that is, even though a company may be headquartered in a certain country, do not assume to use that country as the basis for your cost of capital estimates. You need to look at where the company does its business—where it operates and where it generates revenue—which can be in very different locations than the headquarters. They also discussed the source of data they use, application of country risk premiums, inflation differences, impact of currency exchange rates (forward rates versus spot rate), riskiness of the prospective financial information, and sovereign bond/yield considerations. A full recap of the conference is in the September issue of Business Valuation Update.

What’s in the September 2022 issue of Business Valuation Update

Here’s what you’ll see:

• “Roundup of Recent and Planned Updates to Valuation Standards and Guidance” (BVR Editor). A recap for valuation experts, includes updated valuation standards charts, new planned guidance from the AICPA and Appraisal Foundation, SEC rules, FASB projects, lease accounting, Rule 702, proposed legislation, and more.

• “Recap of the ASA New York Fair Value Conference” (BVR Editor). Important takeaways from the recent conference on these topics: global cost of capital, ASC 718 valuations, ESG impacts on value, discount rate for intangibles, hard-to-value securities, SPAC warrants, and more.

• “Stark Law FMV: Precluded Reliance on Market Data From Business-Related Parties” (Timothy Smith, CPA/ABV). The precluded reliance doctrine has been explicitly affirmed in the new Stark regulations, requiring the industry to pay critical attention to this doctrine in establishing FMV for Stark compliance purposes.

• “Hitchner v. Damodaran on Inputs to the Cost of Capital” (BVR Editor). Jim Hitchner (Valuation Products and Services) responds to some severe criticisms Aswath Damodaran (New York University Stern School of Business) made during a BVR webinar about certain inputs to the cost of capital. Hitchner also offers some best practices and a handy tool to use as a reasonableness check on your cost of capital estimate.

• “Latest Inside Look at the ktMINE Royalty Rate Database” (BVR Editor). “Understand your data” is one of the main tenets of the valuation profession. Brett Schoell gives an up-to-date look at the ktMINE royalty rate database and answers some questions. He is the product lead for ktMINE’s suite of applications, and he supports ktMINE’s transfer pricing and valuation customers.

• “Using Rule of Thumb Benchmark Data to Verify Financials” (BVR Editor). In addition to being used as a check to corroborate a value conclusion reached using other methods, rule of thumb data can be used to validate historical financials. This is particularly useful when valuing cash-intensive businesses. The article provides benchmark data for a dozen types of firms that do a lot of cash business.

The issue also includes:

• A full section of “BV News and Trends/Global BV News and Trends”;

• Regular features: “Ask the Experts” and “Tip of the Month”;

• BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the September 2022 issue of Business Valuation Update.

BV movers . . .

People: David Breitegam, CPA/CVA, has been promoted to partner at Reading, Pa.-based Herbein + Co.; he works with clients in the construction, dairy, and manufacturing industries, and specializes in performing business valuations as part of the firm’s management advisory services group … Valuation Research Corp. (VRC) has hired more than a dozen new analysts and associates as it reports continued robust demand for valuation work, including these recent hires: Adam Brown, analyst (Boston); Elvis Lima, senior associate and Justin Allen, analyst (Dallas); Jack Schlosser, senior associate (Milwaukee); Himanshu Gothi, senior associate, Jeff Guo, Jacob Lottes, Marcus Papas, Alex Ulrich, Nataly Zaks, analysts (New York); Nirav Parmar, senior associate, Donald Palma, associate, Landon Goldman, Damien Halpern, Kallan Johnson, Thomas Kozior, Cory Lescavage, Shane McCafferty, Rohan Misra, Sanjay Tailor, Gavin Weimer, analysts (Princeton); Randy Guerrero, senior associate; Sijia (“Scarlette”) Chen, Dominic Juliano, Rahul Kumar, analysts (San Francisco).

Firms: Atlanta-based Aprio LLP is adding Mooresville, N.C.-based Ladd Robbins CPAs and Consultants, a firm that focuses mainly on healthcare practices, including dental and optometry … Seattle-based Moss Adams will combine with Alexicon, a niche consulting firm specializing in rural telecommunications … Alexandria, Va.-based KWC Certified Public Accountants is adding Kimble CPAs of Richmond, Va. … Chicago-based Crowe LLP is selling its employee stock ownership plan (ESOP) services and certain tax-related 401(k) plan services to ESOP and 401(k) third-party administration and recordkeeping firm Blue Ridge ESOP Associates.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• Fair Value Measurement Auditing: The How To’s of MPF (A BVR Workshop), August 17, 10:00 a.m.-1:10 p.m. PT/1:00 p.m.-4:10 p.m. ET. Featuring: Nene G. Gianfala (Chaffe & Associates) and
  Marc Katsanis). CPE credits: 3.5.

Learn how the new Mandatory Performance Framework (MPF) for valuation professionals will help the auditing of fair value measurements, including the extensive documentation and analysis required by the MPF.

• Calculating Infringement Damages (A BVR Workshop), August 23, 10:00 a.m.-1:10 p.m. PT/1:00 p.m.-4:10 p.m. ET. Featuring: Marc Katsanis (Chaffe & Associates) and Riley Busenlener (Chaffe & Associates). CPE credits: 3.5.

A case study walk-through will be included in this workshop that will discuss best practices for valuing intellectual property for infringement purposes.