Nine Things to Consider Before Purchasing an FA Firm or Client Bank

Buying a successful Financial Advisory (FA) firm or client bank can be a great way to bolster your own growth plans. But, it’s important to make sure you have absolute clarity on the process involved – before you commit to buy.

Retaining clients and key members of staff, as well as deriving the full benefits of your purchase, can be difficult – so don’t rush. Take the time to understand how you want to grow your business and enjoy a thorough courtship with any prospects.

Our Advice?

Dig deep early in the process to protect your time and reduce headaches further down the line. And remember – success isn’t shaking hands, that’s just the prelude to your story.

Drawing upon our own personal experiences, as well as feedback from market research conducted with buyers and sellers, this straight-talking, nine-step guide walks you through what you should be asking if you’re considering the purchase of an FA firm or client bank.

1. Acquaint yourself with the FCA process for change in controls

In advance of acquiring a business, the FCA must approve the purchase. In order to do so, they will expect to see a plan and processes in place to ensure a smooth transition for the acquired clients and firms.

As we covered in a recent blog post, understanding the regulator’s requirements from the outset, can assist with the acquisition journey and save time further down the line.

2. Surround yourself with a team of trusted advisors

Work with people who have specific experience of financial advisory acquisitions. Your core team should consist of legal, tax and compliance professionals. These will become your trusted advisers and will help with objectivity throughout. For example, where you may see the upside potential, they will be able to help you assess the true value of the business – and
protect your time during what can be a lengthy process.

3. First impressions matter

You may wish to meet a potential seller, but don’t run the risk of jeopardising their interest in you – before you’ve even met!

Often – after learning of your interest in their firm – business owners will look you up online. Whether that’s to browse your website, gauge the company ethos via social media or review media coverage to gain an insight into your organisation. You might be clear on the professional and valuable service offered to clients – but does your online presence communicate this?

Consider speaking to a branding expert who understands the financial advisory market, to help ensure your digital image truly reflects who you are as a company – and that any content being promoted is up-to-date and relevant.

This exercise doesn’t have to be expensive or time consuming – particularly when working with an expert in this domain – and could be the difference between getting a foot in the door or not. Don’t be the ‘best kept secret’. Or worse, don’t let your brand show you in the wrong light.

4. Have a clear understanding of company culture

It’s vitally important that you fully understand the culture of the organisation you are acquiring – and by the same token, give them the time to completely appreciate yours.

No two organisations are the same and there are going to be cultural mismatches to be aware of – remember during the ‘courting’ phase everyone tends to be on their best behaviour! It is therefore important to really drill down into what could be a complex combination of values and practices.

Even when two well-managed business come together, there are naturally differences in organisational styles. Considering company ethos has an impact on every aspect of the business, finding a company with a similar philosophy is therefore a key consideration for many sellers.

5. Think carefully about what you want to buy

Are you looking for a retiring IFA with a quick exit strategy, or a full team with premises? If staff retention is important, consider what measures will be put in place for the existing employees, to help with the initial takeover, as well as their personal growth and development goals.

In many cases staff are not privy to a potential acquisition until the latter stages, and it pays to remember they made their decision to work for a different business to the one you run. They do, however, hold the key to a smooth transition.

Take the time to dissect the contracts of employment for the entire workforce – whether they are part-time, full-time, freelance or contractors – with a legal expert, and understand any discrepancies, and remember the TUPE Regulations preserve employees’ terms and conditions when a business is transferred to a new employer.

6. Learn the existing client journey

You’re so proud of what you do and the processes you have in place within your own firm, but take the time to understand the offering being delivered elsewhere, prior to any potential purchase.

During the acquisition, clients are watching closely to ensure standards don’t fall, and it’s important for them to feel any change will only bolster their existing service provision. This may be even more pertinent where their existing adviser is using this opportunity to retire or leave the industry.

The key to successful retention is ensuring that clients have positive experiences early in the process.

7. Be open about your expectations of the firm you are acquiring

Think about the core areas of your client and staff proposition, and make sure they work for the firm being acquired. Being truly transparent in relation to matters that could be ‘dealbreakers’ earlier on in the acquisition process, will protect your time and allow you to continue looking for an opportunity potentially better suited to you.

Client-realted matters to address could include:

– A change in status, such as if you offer a restricted proposition rather than independent
– An expectation that existing clients will be moved into your investment proposition
– A change to client charging.

Share your plans about the firm’s structure once acquired. This could include whether you are planning to centralise any operations or alter the place of work. It’s a good idea to provide plenty of detail about what the new processes and procedure will look like.

It is our experience, that an understanding of the new training and competency process – and in particular the process for CAS status and ongoing monitoring of advisers – is very useful during the initial phase of a purchase.

8. Insist on a transparent due diligence process

Discuss the different aspects of the process – from compliance through to the legalities and tax considerations – with your trusted advisers.

In terms of compliance, it is wise to investigate any high-risk legacy business, undertake a review of a range of different cases from different CF30s, and raise any regulatory or compliance issues. You should also assess the likelihood of complaints in the future, and whether there are any possible threats to the business based on advice provided to date.

Make sure you obtain the last three years of accounts where possible, as well as previous GABRIEL reports, to ensure there are no discrepancies or reporting concerns.

9. Value the business fairly and accurately

It’s important that once a sale is complete, both sides are suitably happy with the transition, and believe they have made a wise financial decision.

Unfortunately, there is no quick answer to the question of how to value a firm, as it depends on both your method of valuation and any personal variables that may reduce or increase the premium paid. Either way, the value should always be fair and well-researched.

Common influencing considerations include:

– Number of clients
– Average customer size
– Age of the portfolio
– Length of relationships
– Average fee being received
– Legacy commissions and adviser fees
– Volume of defined high risk business
– Compliance and regulatory issues
– Track record of growth
– Client retention and satisfaction.

There are two common valuing methods, and the one utilised will often depend on your personal preference as well as what is being acquired.

While some will value a business based on profitability (EBITDA), others prefer a multiple of assets under management approach.

Once a method has been established, your personal variables will come into play to try to ensure a profitable purchase.


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