Red flags
An unfortunate feature of the financial advice space in recent years has been the question marks raised over the advice given on defined benefit (DB) pension transfers.
“Not all pension transfers are the same, and acquirers will still consider firms with DB exposure where the rationale is well documented, a comprehensive process was followed, clients have been assessed as having the relevant knowledge and experience, and there is wider financial position to benefit from the flexibility this type of advice offers,” explains Ms Hicks.
However, James Hunter, chief financial officer at IWP, says a high number of transfers can make it difficult for a buyer to assess the risk it is taking on.
“Many firms have done some, but if a firm has done more than say 40 or 50, it becomes practically hard to assess them all,” he says.
Buyers will also be wary of clients having taken transfer advice and then “switching off” ongoing advice soon afterwards, given the lack of relationship but potential for negative consequences in future.
Scott Stevens, director of adviser acquisition and recruitment at Quilter, says it is not just DB transfers that can cause headaches: “The key risk a buyer is looking for here is around advice liability, quality of advice and provision of future complaints.”
IWP’s Mr Hunter adds that firms using self-employed advisers or appointed representatives are less attractive as “the economics are unattractive and client ownership may be ambiguous”.
Another aspect that could make a business less attractive is the demographics of its client base.
Pareto’s Mr Cristin warns that future prospects for growth could be lower if the majority of clients are approaching retirement as it suggests a drop-off in recurring business.
Should I stay or should I go?
Another key factor for a selling owner to decide on is whether they stay with the company post-sale. Mr Cristin says this is a decision that needs to be made early on in the process.
“In a well-run business the owner should not be involved in the day-to-day running of the company,” he says. “There should be systems and procedures in place to ensure that the business can run without them.”
The owner or founder of a company often “sets the drumbeat for the team”, adds Mr Morrish, especially for smaller companies. This means that, if they stay even for a short period after the sale it projects “confidence and commitment for the next phase of the business”.
