What do you actually have to sell?


So, you’re looking to sell your financial advice business. You’ve worked out how much you think the business is worth, either based on EBITDA or a multiple of recurring income and you’ve engaged with a buyer. Everything is going to plan, and you can see yourself enjoying the fruits of your life’s work, possibly involving an ice-cold beer on a nice beach somewhere.

Then, halfway through the acquisition due diligence process, you get an awkward call from the buyer. They’re asking questions about your contracts and querying the ownership of your assets. Suddenly, that beach seems a lot farther away and the need to find a beer (or something stronger) becomes considerably more pressing.

When you’re looking to sell your business, it’s easy to think that you know exactly what you’ve got to sell, however if you’re an Appointed Representative of a network, or have self-employed advisers working in your business, things might not be as simple as they seem.

Let’s start with the most straight forward scenario. If you’re directly authorised where all the advisers are owners, it probably is as simple as you think. With no connected parties, there should be no ambiguity on ownership of your clients.

If you have connected parties, such as being part of a network, or self-employed advisers working in your firm, the key to establishing ownership of assets will be a thorough review of your legal agreements.

First, let’s look at Appointed Representatives. As an Appointed Representative (or AR), you are acting under the authorisation of the network, carrying out business on their behalf as their appointed representative. You will have an AR agreement with the network outlining the relationship, what is expected of you and what you can expect from them. Within this agreement, there will be a section on client ownership, and this is where you need to pay particular attention.

As you are carrying out work on behalf of the network, technically, all your clients are clients of the network, on whose behalf you are acting. In reality, most of the time, the network won’t challenge your client ownership and let you take your clients with you, although your AR agreement may have a clause which states something like “any clients introduced by the network to the firm shall remain clients of the network”. In short, if they gave you the lead, they retain the client.

How much this impacts you will depend on how many of your clients have been introduced by the network, but if a lot of your business has arrived this way, it could knock a chunk off your recurring income. You may be able to negotiate with the network, getting them to agree to you taking the clients, however it is wise to know the position before entering into heads of terms with a buyer.

Whilst some leaving firms will approach these clients directly after they’ve left without the network’s authority, there is a real risk of legal action which I for one would try and avoid! Whilst some cases recently have sided with the adviser based on restriction of earnings, it takes time and effort, and you might lose the customer from the often competing correspondence they’ll receive from both parties.

Of course, the other potential danger when selling as an AR of a network is that the network may not want to let you go. Whilst this shouldn’t affect the assets you have, it can severely aggravate the process of leaving. In some instances, if you’ve not followed the exit process properly, I’ve seen networks write out to your clients saying that you’ve left and promoting that the customers engage with their advisers going forwards!

Most networks have an exit checklist that they provide to you which will include things like returning client files, repaying any outstanding fees, etc. You want as smooth and speedy an exit as possible to keep your buyer happy so do everything on the checklist as quickly as you can. Even if you’re not enamoured with the network, grit your teeth and play nice – it will be worth it in the end.

That’s ARs covered, but what about if you own a firm which has self-employed advisers working for it?

Well, it’s basically a reverse of the network situation. You will (hopefully!) have contracts in place with your advisers detailing your relationship, the split of responsibilities, and the like. This contract should also cover client ownership. Make sure you review this thoroughly (and get legal advice if required) before agreeing a sale.

I’ve seen a firm agree a sale and then have half of their self-employed advisers leave and take their clients with them during the acquisition process, leaving the firm’s assets at less than half of the original amount. The deal didn’t go ahead funnily enough!

If you don’t have contracts in place with your self-employed advisers, get one drawn up, agreed, and signed before you start the sale process. It may incur a cost and create a slight delay; however, it will make things a whole lot easier in the long run.

The motto of the story? Don’t assume you own everything that is currently looked after by your business. Check your contracts before making the decision to sell and before you agree terms with a buyer. You may well save everyone a lot of wasted effort by making sure you understand the details in your contracts before starting the sale process.

If you are thinking of selling, drop us an email or give us a call. Our VaueBoost programme can significantly increase the sale value of your business and stop down valuations during the due diligence process.

Getting your business ready for sale can increase its value by tens, or even hundreds of thousands of pounds. Let us help you get the sale price you deserve.


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