Q&A  

Selling your IFA amid DB transfer risk

Selling your IFA amid DB transfer risk

Q: How can you ensure a successful sale in the face of defined benefit transfer risks?

A: It  is a great time if you are looking to sell your IFA company.

There are plenty of buyers out there, and there is a high market value for businesses with a good track record. 

The higher demand from buyers for IFA companies has coincided, fortunately for some, with many advisers looking to retire.

Others are taking advantage of the situation to take a step away from management or to gain the expertise of a larger advice company.

But while it might look like a done deal, there is a big problem causing some acquisitions to fail: the company’s quality of past defined benefit pensions transfer advice.

DB pension transfers have captured political and press interest, and the Financial Conduct Authority’s reviews of advice in this area found poor results.

For several years there has been a sector-wide failure, as far as the regulator is concerned, to deliver suitable pensions transfer advice.

So everyone in the industry is aware there is a problem.

That problem becomes particularly pressing when you come to sell your company. 

When we carry out regulatory due diligence for our acquiring clients, pensions transfers are one of the first things we look at, and in my experience the single biggest reason acquisitions fail on the conduct side is the IFA’s history of DB pensions transfer advice. 

Many advisory companies’ advice in this area passes their own internal compliance process but has never been reviewed independently.

So the first time failings are uncovered is during the regulatory due diligence process.  

And when issues with pension transfers do come to light, acquiring companies are particularly unlikely to want to continue with a sale. 

Acquiring organisations will question whether the IFA is worth what they have agreed to pay, and linked to that is the hassle and cost of remediation activities.

Redress on unsuitable pension transfers is potentially high, so a track record of poor quality DB advice carries with it a lot of liability. 

So if you have a DB transfer business what can you do?

Enlist independent external advice to review a sample of your company’s pension transfer advice before you start acquisition activity.

Getting this sorted early will give you the clearest picture of the value of your business as well as the chance to rectify any issues before you get to the regulatory due diligence stage.

What is more, an independent verification that you have a good record of pensions advice is an excellent selling point for your company.

So if you are considering selling up in the next few years, invest in an independent review now. 

David Boyhan is an associate director at TCC