Next Wealth managing director Heather Hopkin’s comments in her recent article for Money Marketing, entitled Selling up not selling out, reflect some recurring themes I experience working with advice firm owners contemplating a sale of their business.
These are:
- The challenge they face in getting under the bonnet of an acquirer’s business model and proposition
- Making accurate comparisons between different acquirers’ propositions and financial offers
- Understanding the tax implications
- Ensuring the right outcomes for clients, their colleagues and themselves
There is also now the potential impacts of the new Consumer Duty regulation.
The Financial Conduct Authority has often talked about the asymmetric relationship between clients and advisers in the context of products – i.e. the relative level of knowledge each has and the need to ensure clients are protected.
There are currently over 150 potential acquirers, be they consolidators or aggregators
There is no regulator financial planning firm owners can turn to when the sale of their firm does not turn out as planned, and recourse to legal remedies is a last resort, which comes with costs and often an uncertain outcome.
So, what should owners do to mitigate the risk of an unsatisfactory outcome as far as possible?
First, set clear objectives for the sale and the desired outcome. Obtain challenge, both from within your firm and externally, be that an existing trusted adviser or a professional consultant with in-depth experience of financial planning business sales.
Second, engage the support you need to carry out the sale. Your existing professional advisers such as accountants and solicitors may not be able to guide you on the detail of the transaction, as they may not have recent and relevant practical experience in relation to financial planning businesses.
Third, conduct thorough due diligence on any potential acquirer, and have a scoring process that enables you to make accurate comparisons.
Obtain challenge, both from within your firm and externally, be that an existing trusted adviser or a professional consultant
Forth, document what is discussed and agreed, and do not rely on any verbal agreements. Be mindful that unless what you have agreed is set out in the sale and purchase agreement (SPA), it is very unlikely to be enforceable, as the SPA usually has a clause that states its contents supersede previous discussions.
Fifth, ensure you participate in the ensuing integration and remain sighted on its progress, as a failure to integrate effectively is one of the main reasons why sales turn out badly and often affect the level of the deferred payments made.
If all of this sounds a challenge, it is. There are currently over 150 potential acquirers, be they consolidators or aggregators, with at least 35 of these private equity backed and the rest ranging from family office and regional firms to product providers.
They all have different approaches, all with their pros and cons, and understanding their propositions, strategic plans and how well funded they are to make acquisitions are all important, let alone their resources and ability to integrate effectively after a sale has been completed.
We see a higher rate of unsatisfactory outcomes where financial planning firm owners undertake the sale process without external expertise and support.
Firms offering expertise to support sellers should be able to articulate their competencies, the value they bring, provide examples of successful outcomes and supply references.
Roderic Rennison is a founder and partner of Catalyst Partners
