If your firm is authorised by the Financial Conduct Authority, or is an appointed representative of one that is, selling it works in much the same way as any other business sale, except that there’s a regulator involved. The FCA decides who is allowed to control an authorised firm, and that has more effect on the timetable than anything else.
I act on sales of financial services businesses and their client banks, which includes independent financial advisers (both directly authorised and appointed representatives), mortgage brokers, insurance brokers and employee benefits firms. Recent work includes sales of IFA practices, the purchase of an employee benefits client bank, and the purchase of an insurance client bank by a wealth management company.
A share sale or a client bank sale
There are two ways of doing it. You can sell the shares in the authorised company, so that the buyer takes the firm with its permissions, its staff and its history of advice, or you can sell the client bank (the book of business) to a buyer that already has its own permissions, and afterwards wind your firm down or keep it for something else.
The choice affects the price, the tax, the regulatory process and who is left with the liability for advice already given, so it’s worth deciding early on. I’ve written about how a client bank sale really works, and a SIPP client bank acquisition I acted on for Westerby Trustee Services is a published example of that kind of deal.
FCA approval of a change in control
On a share sale of an authorised firm, the buyer has to notify the FCA and get its approval before it acquires control. Completing without approval is a criminal offence on the buyer’s part, so the sale agreement is signed conditionally and completes only once approval has come through.
The FCA has up to 60 working days to assess a notification once it treats it as complete, and it can stop the clock while it asks for more information. Once you add the time it takes the buyer to prepare the application, in my experience a sale needing FCA consent usually takes around six months from start to finish, and occasionally up to twelve. An ordinary business sale takes two to three months, so you’ll need to plan for the longer period, and a completion date can’t really be relied on until the application has gone in.
A client bank sale doesn’t involve a change in control of your firm, so it can be quicker, but the buyer must hold the right permissions for the business it’s taking on.
Appointed representatives and networks
If you’re an appointed representative, your principal or network will need to be involved, even though it won’t sign the sale agreement. Your agreement with the network will say what happens when you leave or sell, including notice periods, what you can and can’t do with the clients, and often a right for the network to hold back commission against future liabilities. The buyer will either need to be approved by the same network or move the clients to its own principal. On these deals the timetable often depends on the network’s cooperation, so that agreement is one of the first things I read.
Payments tied to client retention
Buyers of client banks are paying for recurring income, and they usually pay in stages. Part of the price is paid at completion and the balance over a period, and the balance is commonly reduced if clients leave or the recurring income falls below an agreed level. As with any deferred price, the agreement needs to be clear about how income is measured and when, what happens if the buyer changes the charging structure or the adviser the client sees, and what you can do if a payment is late. There’s more in my article on deferred payments.
Clients also have to be told, and on a client bank sale they have to agree to move. The agreement should set out who writes to them and when, and how files and data are transferred, which I’ve covered in can I transfer my client list when I sell my business? You’ll normally be asked to help with introductions for a period afterwards and to give restrictive covenants over the clients you’ve sold.
Liability for past advice
Buyers tend to be most concerned about liability for advice which has already been given. On a share sale it stays in the company, which the buyer now owns, so you should expect detailed warranties about compliance and complaints, specific indemnities for anything known, and probably a retention from the price. On a client bank sale the liability normally stays with you, and so does the need for run-off professional indemnity cover. The agreement also needs to say who bears any clawback of initial commission on policies that lapse after completion.
Many experienced buyers will select a sample of client files and check them for fact finds, suitability reports and ongoing review records. If your files are in good order that goes quickly, and if they’re not, it’s better for you to find out before a buyer does. An exit readiness review covers the legal side of that preparation, and a compliance consultant can do the file reviews.
Valuation, timing and cost
I don’t value financial services businesses. There are brokers and corporate finance advisers who specialise in valuing IFA and other financial services businesses, and I normally recommend one of them. My part is making sure that the sale documents properly reflect the price you’ve agreed.
As for timing, it’s around six months, and occasionally up to twelve, where FCA approval is needed, and two to three months or so where it isn’t.
I work on fixed fees, with a written scope of work agreed before I start. The fee depends on the size of the deal and how much work is involved. On a sale or purchase between £500,000 and £5m it’s usually between about 1% and 3% of the price, and the percentage falls as the deal gets bigger. Most full sales and purchases start at around £10,000 plus VAT, and selling a client bank usually costs a little less than selling the whole firm, as there’s less to negotiate.
I act for buyers of these businesses too, and there’s a separate page on buying a financial services business.
Next steps
If you’d like me to act, get in touch and send me the details, including whether you’re directly authorised or an appointed representative, what’s being sold, the price and who the buyer is. I’ll tell you how I can help and what it will cost.
