Our IFA targets need to start planning their exit years in advance

We have invested in our brand to attract new clients and referrals and, having created a structure with surplus capacity, we are always considering firms to buy.

But there are certain things we look for in target IFA firms.

Timothy James & Partners is valued on an earnings before interest, tax, depreciation and amortisation basis and therefore we consider the potential cost of running the new income streams and client base of a potential target firm. How much support do they need? How much additional professional indemnity cover? How much office space for the new team? 

The type of businesses that are attracted to Timothy James & Partners are those that put their clients’ interests first: they want to know that their clients will be looked after over the long-term by a truly independent financial adviser. 

We are not a consolidator, and we have no desire to ever become restricted. We wish to remain independent, acting on behalf of the clients making sure they have the best and most suitable advice in respect of platforms, solutions, investment services and charging structures. 

What we don’t want to do is start the process only to discover that the directors don’t actually want to retire or move on after all! 

We require the retiring IFA to have an ambassadorial role for a two-year period to ensure the clients feel that the retiring consultant has handed the ‘baton’ over to the chosen consultant at Timothy James & Partners.

As a relationship and service-based business, we put forward four qualified and experienced Timothy James & Partners consultants, both male and female, so that the retiring IFA can decide which personality best suits each client. 

In most transactions, we look to leave clients’ platforms, investment services and charging structures the same for a two-year period as they get to know their new consultant and recover from the ‘shock’ of their long-term trusted adviser retiring or moving on.

We would only change any existing arrangements when it is suitable for the client and with their agreement. 

Tips for those retiring:

I think that you need to be clear that you do actually want to sell your business and you have something planned that is exciting and thought out.

We want to pay a fair price for the business to reflect 10-20 years' of hard work. What we do not want to do is start the process only to discover that the directors do not actually want to retire or move on after all. 

We would also recommend that you start thinking about this journey a few years in advance of when you want to leave. This is because we – or any other potential purchaser – will spend time reaching agreed heads of terms before starting the due diligence.

We will not compromise on the services we provide to a client.

In our case, this will usually be around six months. Then, as mentioned, we like the business vendor to work in an ambassadorial/handover role for another two years, so it is important to factor in time for this. 

Also, think about how you are going to price your business. Some people prefer to have a fixed purchase price agreed on the last twelve months’ actual figures before completion, and others prefer to consider the recurring income streams and investment performance in relation to the fluctuating fees over two-year earn out period. We are happy to consider both. 

The other main areas that need to be considered are the following:

• How do you demonstrate that the clients know the fees they are being charged in pounds and pence each year?
• How do you prove that the client has had an annual review? Are the fact finds signed every year, is there an overview letter, is there a dated valuation schedule of their plans? 
• How are the aggregated costs explained to the client each year and how do you demonstrate that? 
• Is there a complaints procedure and register? 
• We are interested to see that the clients’ tolerance and capacity for loss are assessed and reviewed. How can you demonstrate that to us?

Over the past two or three years, these are some of the areas that smaller businesses have found difficult to illustrate. 

It is vital that we get to see detailed fact finds, including monthly expenditure, conversations about capacity for loss, tolerance, and risk analysis. 

While these points might not actually prevent us from purchasing a business, we will not compromise on the services we provide to a client.

We have a rigorous approach to our annual fact finding and documentation. We do not want the newly purchased clients to be shocked by the amount of detail that we collate, which they may find intrusive or unnecessary. 

What do we look for in a business acquisition? 

The most important consideration for us is the clients’ requirements and that they will be a good ‘fit’ for our firm.

We want the incoming clients to feel that there will not be too much change. If you are thinking of selling, it is important that you look for firms that you think will be a good fit for your clients.

Of course, every firm is different, so the below considerations are bespoke to us: 

• The clients are predominantly inside the M25, either living or working. We are London based and encourage clients to see us at our offices off Piccadilly. 
• The majority of the target firm’s clients are self-employed business owners rather than a large, employed client base.
• They are on platforms that are similar to Timothy James & Partners. We use Quilter’s (Skandia), Transact, Ascentric and Fidelity predominantly, whichever is the most suitable.
• Timothy James & Partners operates on the IO database and our preference is to purchase firms with the same ‘back office’. 
• Typically, we look at purchasing firms with a turnover of between £500,000-£2mn per revenue with both recurring and initial income.
• Firms that charge their clients between 0.5 per cent-1 per cent a year. We charge 0.65 per cent-0.85 per cent a year of the fund value depending on the investment service. 

During the initial exploratory process, we would look to reach heads of terms within two months.

We explore the differences between services, culture, potential risks and liabilities within the client base and discuss those in line with the sellers’ objectives.

We then like to leave four months for due diligence and build the relationship before obtaining Financial Conduct Authority approval and completing. 

Depending on the quality of the files, record keeping, potential liability and the number of defined benefit pension transfers, we will purchase the limited company shares or potentially the client base. 

Typically, we agree to pay 50 per cent of the purchase price upfront, 25 per cent after 13 months and 25 per cent after 30 months.

We like to have a gap of six months between the retiring IFA’s ambassadorial role finishing and all the clients being passed over to make sure that those clients are settled in. 

We want to be as important to our clients as they are to us. That thought process is applied to the client base of the retiring IFA. We do not believe in diluting old fashioned values, client service levels and want to continue long-term personal relationships. 

Tim Whiting, founder and managing director at Timothy James & Partners