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).
If you can evidence that these elements are at the heart of your business model and culture, that will go a long way to convincing external reviewers – and by extension, the potential purchaser of your company – that you are fit for acquisition.
Regulatory due diligence is normally a high-level and time-constrained exercise; there is usually an urgent deadline to meet.
But it is amazing how much you can tell about a company by looking through a judiciously selected sample of client files, reviewing a few basic compliance controls, and quizzing a few key individuals.
We find that standards do vary a lot between ostensibly similar companies, so it is worth considering what you can do to give yourself the best chance of a favourable regulatory due diligence report card.
Of course, challenging yourself in this manner, and addressing any significant gaps you find, will also pay dividends if you happen to come under the spotlight from the regulator before you manage to sell your business.
Neil Walkling is managing consultant of Bovill’s investments team
