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Dear Rob and Roderic…

Adviser Evolution’s resident agony uncles and The Ideas Lab directors Rob Reid and Roderic Rennison answer adviser queries regarding the retail distribution review.

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I am thinking of selling out to a consolidator but the recent FSA pronouncement has given me some concerns. Can you suggest some key issues that I should be raising before going any further?

Rob Reid director The Ideas Lab I would focus on two points – exit and compliance – and not necessarily in that order. Where the payment for your firm is dependent on the consolidator reaching an optimum size, just how much “wiggle” room is in their business plan and can you leave on reasonable terms if you want to? Also, are they FSA regulated if not have they taken advice on the single platform approach?

Roderic Rennison director The Ideas Lab

There is no doubt that selling your firm as part of a larger operation will be likely to generate a higher multiple than you would achieve on your own. Where the success of the consolidation relies on generating more income from an existing client bank, you need to consider how many of your clients would truly benefit from this and ensure the process for migration takes into account individual client requirements. TCF makes this essential.

One of my key staff is at diploma level and one is almost at chartered. I am not prepared to study at this stage of my life. They have expressed an interest in buying me out. How can we achieve this fairly to all?

Rob Reid

Fair to all is a good place to start and means that both sides will need to make concessions, I would suggest appointing an independent firm to value the firm on two points – the first based on an open market sale and the second on an internal deal. These two valuations will recognise that in avoiding diploma you are discounting the value of your firm.

Roderic Rennison

Rob is correct, the valuation is the starting point from which you should then build a financial model to look at the feasibility of them buying you out from their share of the profits. You have to accept, however, that this means you will receive payment over a period and will probably continue to be needed in the business for a period of time to achieve a smooth handover of your clients.

I have no intention of sitting more exams and intend to simply sell as much as I can pre-2012 then exit the industry. What kind of multiple could I expect?

Rob Reid

Multiple? You’ll be lucky to find someone to take it away without charging you. Buyers know you cannot continue so why would they pay you a premium? My suggestion is either to sell now or get those books out and start swotting and, who knows, you might like it.

Roderic Rennison

What you need to have in place is a post-2012 structure that allows you to remain in place albeit not giving advice. Someone dedicated to working on the business can only improve its service to clients and value. That benefits your clients and you.


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