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The regulator’s view and onling liabilities

This article is part of
Guide to IFA Consolidation

Dominic Rose, acquisitions director of Bellpenny, says the regulator would be interested in customer outcomes of any potential sale.

He says: “The FCA would expect that both companies (i.e. the buyer and the seller) give equal consideration to these two areas.”

In particular, Mr Rose says the regulator’s concerns are around orphaned clients – i.e. ensuring that clients are not going to be ‘orphaned’ as part of an acquisition process as well as ensuring that clients are not going to be shoehorned into unsuitable product areas/investments.

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He says: “This should be a concern for anyone looking to sell their business, not just because of the regulator, but because doing the right thing for the clients should be how the business in question has grown.

“This moral responsibility doesn’t cease because of the sale of the business.”

On the subject of past liabilities, as a shareholder in a regulated entity, Mr Rose says you should expect that the liability for historic advice will remain with you.

He says it is highly unlikely that a consolidator will accept these liabilities and they will seek personal indemnities from you in this respect.

This is a key drawback of the business remaining active as opposed to closing it down: where a firm is established as a limited liability partnership there is less recourse to claims in your retirement if the firm was dissolved.

Mr Rose adds Bellpenny requires that businesses it acquires take out professional indemnity run-off cover for a minimum period of six years to insure this liability. Given the often noted ‘hardening’ of the PI market, this could be a significant cost to be factored in to calculations.