Independent Financial Advisers (IFAs)

Our team of specialist Corporate Solicitors have years of experience in providing advice to independent financial advisers (IFAs) on all aspects of acquisitions, disposals and mergers. 

Whether you are acquiring a practice or thinking of retiring from your own business, we can guide you through the entire process and advise you on the aspects of acquiring or disposing of an IFA business.

Acquiring or selling an IFA practice has plenty of issues in common with acquiring or selling other types of businesses. However, there are also a number of unique aspects to an IFA practice transaction which require specialist advice.

An IFA practice is typically valued based on a multiple of the recurring fees payable by its clients. Excess cash or asset value can then be added, or indebtedness deducted, as appropriate, depending on the structure of the acquisition or disposal.

This valuation mechanism brings about several risks for both buyer and seller to consider and requires detailed consideration to ensure the mechanism operates properly in practice.

It is typical on IFA acquisitions to have a price adjustment (or a “clawback”) mechanism. This usually operates to reduce the purchase price to the extent that clients leave the practice during a specified period of time following completion (or, sometimes, to increase the purchase price if the fees increase).

A buyer will be keen to ensure that the price adjustment mechanism is robust and allows for an appropriate reduction in the purchase price, so that the recurring nature of the fees payable by the clients can be truly “tested” following completion.

Conversely, a seller will be wary that clients may leave due to factors beyond their control.  A seller will therefore typically seek certain contractual reassurances from the buyer regarding the conduct of the business following completion and may seek to exclude certain clients from the adjustment.

It also typical for the mechanism to be tiered, depending on the timing of the client leaving the practice, and this is another issue which needs to be negotiated in detail.

Ultimately, it is in the interests of both buyer and seller to ensure the continued success of the business following completion. It is common for a seller to stay on in a consultancy capacity in order to facilitate the smooth handover and ongoing relationship with the clients.  As well as agreeing the terms of any such appointment, it is important to ensure that the agreement is compliant with the applicable regulatory requirements (including FCA regulation).

Finally, the consideration will also typically be paid over a period of time, meaning there are issues around set-off and security which we can also advise on.

If you are selling your practice, it is crucial that everything is in order with the business, as this is the first step in mitigating your risk on an exit.

We can work with you to ensure that you have everything in place, from your terms and conditions and shareholder arrangements to GDPR and risk compliance.

For IFA practitioners contemplating a future sale, it is always worth exploring the options available to you in order to preserve value and encourage growth.

One way to achieve this is to incentivise key staff, to ensure they remain with your business until an exit.  We can advise on the various methods of achieving this, including share option schemes, and help you implement this.

Conversely, if you are contemplating acquiring a practice, it is important that you identify any risks at the early stages of the transaction in order to properly cater for these in the main transactional document through warranty or indemnity cover, or an adjustment to the purchase price. 

We can assist you at each step of the due diligence process and help you ensure that you are sufficiently protected from any risks which arise.

We have years of experience in assisting IFAs with sales, acquisitions and mergers.

Recent examples of our work in this sector include:

• Advising an owner of an IFA practice on the disposal of 80% of the shares in a practice, including a complex price adjustment mechanism, security requirements and consultancy arrangements;
• Advising a firm of solicitors on its acquisition of the assets of an IFA practice, including a heavily negotiated earn-out mechanism (with earn-out protections).
• Advising an IFA practice on its constitutional arrangements, including drafting the company constitution, advising on share class rights and exit planning.