“It is certain that there will be a specific indemnity against any liability arising. The excesses on DB transfers are likely to be high and in some cases, it may be impossible to get professional indemnity insurance on certain types of DB transfer business.”
Despite this, it does not mean the business will not sell, but it is likely to be a long and bumpy road.
Clayton Witter, an associate partner at Harrison Spence, says: “It depends on the due diligence. It is more about the risk that sits in your book.
“If you have done the DB transfer, the compliance, suitability and fact-find well, and the process was executed in the right fashion, then as an IFA you have nothing to worry about.”
Companies that outsource to discretionary fund managers might also find it hard to secure a buyer.
Mr Dyer says: “Buyers may have their own offerings and might be looking for revenue synergies by moving acquired clients to their own propositions. The chances are that if there has been an outsource, clients will already have been moved once, so a second time might be problematic.”
Self-employment
A company with self-employed advisers could be another issue for buyers.
Where a business has a significant number of self-employed advisers, it may not be seen as having a very clear and consistent compensation culture.
The question of who owns the client is less clear. If the business were to sell and the adviser then left, it might be harder to prevent a large number of clients from leaving as well.
To increase their attractiveness and value, advisers really need to understand their figures so that they do not overvalue their business, Henry Blunt, managing director of M&A expert Retiring IFA says.
It may sound elementary, but it is not every adviser that gets this right, Mr Blunt suggests.
Know your customer
Advisers should know the demographics of their customer base, such as how many households they look after, age of clients and where their customers are based.
The average time it takes to complete a sale is nearly four months, and the average number of meetings between a buyer and seller prior to deal completion is three, according to data from Retiring IFA.
The shape of a deal is also heavily dependent on the size and quality of the client bank.
However, it has become clear that across all deals, a minimum of 50 per cent of total consideration, paid in cash, is expected up front. Last year, many acquirers offered upwards of 75 per cent up front in order to remain competitive.
Reasons for selling
As buyers are prepared to pay a good amount of money, IFAs are also very keen to sell – for a variety of reasons.
Top of the list is regulation.
Businesses, particularly smaller ones of around £1m-£2m, are struggling under the weight of compliance.
