View more on these topics

Success in succession

All the statistics say that the stereotypical IFA has an average age of 54. With the new regulatory regime and multi-ties around the corner, the thoughts of many IFAs must be turning to leaving the business and selling up.

I have never seen any figures on how well the average IFA plans for their pension but I suspect, like the vast bulk of people, this will nowhere match what they need to live on.

The need to bridge the gap is usually plugged by an IFA selling their practice for a capital sum based on a multiple of renewal commission.

The Glaister v Greenwood case has vastly affected the way a potential buyer should view the advice risks associated with an acquisition.

The capital buyout seems to be a very expensive opt-ion, particularly when you add potential latent advice liabilities. The Towry Law latent liability disclosure has put the cat among the pigeons where acquisitions and disposals are concerned. To leave renewal commission within a network or to let it lapse back into the internal costs of the provider is to waste a valuable asset that has accrued.

In my opinion, lifetime liability for advice after Glai-ster requires a retired IFA to maintain run-off cover until death. One network contract I have seen extends the period on to an IFA&#39s executors.

The answer seems to be to structure an exit route based around income and “earn-out” periods. The contract between the parties needs to be drawn carefully so as to allow the key issues to be addressed fully. The key issues which will help a vendor in a transaction are listed below. This list is not exhaustive but will act as a guide to the main points.

Renewal commission

Be in a position to list client and provider spread. The wider the spread, the less risk and more value. A couple of major clients drastically devalues a practice as the exposure to a limited number of clients increases the risk of a vastly reduced income flow in the future.

Succession structure

To get 100 per cent of monies at completion, with limited warranties and ind-emnities, is a Utopia vendors must dream of. If it is offered, snatch the hand off your buyer.

A more sensible app-roach is to accept a phasing of monies over an earn-out period. The earn-out provisions in a contract have to be clearly defined and agreed. The advantage of an earn-out is that it allows both parties to get clients acquainted to the new structure. Most clients are very willing to accept change as long as it is managed properly.

Regulatory issues

Does the new adviser bec-ome a partner or shareholding director immediately? Is the transfer of equ-ity to be staged over a period? Does the new person need to be registered with the PIA as a principal?

Where the new adviser joins a network IFA, the issues relating to the extent of personal liability under the contract must be studied. The exiting IFA requires a closedown of liability. What if this cannot be achieved? How will it be managed?

Due diligence

Ensure the full picture is disclosed. Prepare the cla-ims&#39 history on your professional indemnity insurance for inspection. Disclose the nature of the business structure, show accounts and bank statements. The buyer is more likely to buy if a clear business picture is shown.

Secrecy agreement

One of the key areas that you must secure before doing anything is a secrecy agreement. This is vital as, without it, you might as well publish your intimate business details on the internet. The documents set out what level of confidentiality is required.

As part of this agreement, move yourself towards heads of terms, where the bones of the agreement are set out. In that way, you have the structure of the deal agreed. The devil then comes in the detail.

Never shake hands and rely on it. Always have the agreement drawn up to reflect what has been agreed. The effect of not doing so is a sure trip to court. In any transaction, one party&#39s int-erests vary radically from the other&#39s interests.

You need to be acutely aware of the need for forward planning. There are many IFA practices for sale and many buyers.

Matching them is the easy part, making them a workable union is a lot more difficult.


Occupational pensions &#39reduce pensioner poverty&#39

Occupational pensions are a major factor in reducing pensioner poverty, according to new research conducted for the National Association of Pension Funds.The report, by a the National Institute of Economic and Social Research, concludes eight out of ten of today&#39s pensioners have a standard of living at least as high as the average level achieved […]

Misys IFA Services launches interactive mortgage website

Misys IFA Services has added a new interactive website to its Mortgage Connections loans service, which gives members access to information on lenders and products.The site at gives members of Countrywide, Financial Options, Kestrel and IFA Network, a list of lenders and products, details of mortgage related training and information on any special offers.The […]

Gartmore looks for stability

Gartmore’s stable growth fund is a unit trust aimed at investors who are looking for a low-risk investment. It has been designed for growth by investing in zero dividend preference shares from split capital investment trusts.There are currently about 100 zero dividend preference share products on the market, and the Gartmore fund will invest in […]

High cost in high street if the Nationwide demutualised

If Nationwide Building Society were to demutualise, UK borrowers and savers would pay over £30bn more in higher mortgage rates and lost interest over the next 10 years, warns the Consumers&#39 Association.The claim comes after the CA analysed research of the last five years which examined the potential impact of the remaining building societies converting […]

What triggers the MPAA?

Jim Grant – Senior Product Insight & Technical Support Analyst There’s sometimes confusion around what triggers the money purchase annual allowance. Find out what does and what doesn’t trigger the MPAA. The money purchase annual allowance (MPAA) is a reduced annual allowance that can apply to contributions to defined contribution (DC) schemes. The following table […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm