This gives an independent regulatory specialist an opportunity to ask about issues or concerns that are identified from the client files or compliance records.
Additionally, we also ask questions about a company’s culture and business model and its approach towards compliance.
Examples of questions we tend to ask include:
• How do you make sure your advice fee structure is fair and consistently applied across your client base and across different advisers?
• How do you take the impact of all aggregated fees and costs on the viability of clients’ portfolios into account?
• How do you ensure clients receive value from any ongoing service they pay for, including your controls over the delivery of annual advice reviews?
• How do you build investment portfolios for your clients? How does your centralised investment proposition work? How do you identify clients it is not suitable for?
• What target market analysis have you done on your advice services and investment propositions, and how do you know your advisers use it in practice to decide which services and investment solutions are suitable for which clients?
• Where does your client risk-profiling methodology come from? How has it evolved over the years to take account of the Financial Conduct Authority’s good and poor practice guidance? What alternatives have you considered?
• How did you prepare for major regulatory changes (such as Mifid II and General Data Protection Regulation) and what changes did you make?
Of course, there are lots of other questions you could be asked; it is impossible to predict them all in advance.
But that does not mean you can not be prepared. You could brainstorm potential regulatory due diligence interview questions internally with colleagues, or perhaps ask an external expert to conduct a mock interview.
If some of your answers are a bit flimsy or unconvincing, you could consider what more you could do to convince an independent observer that you are committed to complying with your regulatory obligations, and that you always put the best interests of your clients front and centre of your work for them.
In our experience, potential acquirers of financial advice businesses recognise that companies often struggle to keep up with compliance-related matters, which is particularly the case for small businesses.
Many advice companies are not geared-up to keep on top of regulatory developments; to create and maintain a full suite of documented policies and procedures; or to devote significant internal or external resources to compliance activities.
Indeed, if your potential purchaser asks us to run the rule over your company then there is an expectation that we will find gaps or deficiencies – but it is important that you are as well-prepared as possible.
Fundamentally, what most acquirers are looking for is evidence of five things: that you provide high-quality advice to your clients; that you deliver the ongoing services they pay good money for; that you make a reasonable effort to keep up-to-date with any regulatory changes; that your business is well-run and managed (which includes compliance-risk considerations); and that you act in the best interests of your clients (rather than, say, taking advantage of them to generate extra income).