Andrew Robins

Published 9 April 2024

Selling an IFA Business

There may be many reasons why you are thinking of selling an IFA business from increased costs and compliance requirements to lifestyle changes or retirement, but the success of any sale will nearly always depend on the planning, preparation, negotiation and finally the drafting of the sale agreement. It is inevitable that you will need legal advice and assistance during the process, and it is sensible to take this advice as early as possible. In this post about selling your IFA business, we take a look at just some of the main areas to consider.

Is now a good time to sell?

This is never an easy question to answer and will depend on many things, not least, your particular circumstances. However, there does still seem to be a reasonable demand for IFA businesses both from larger organisations but also from smaller IFAs wanting to grow, and some private equity firms who want to add to their portfolio.

Your exit strategy

It’s never too late or too early to have a well-planned exit strategy. Having a clear idea of what you want to achieve and when by will obviously help inform decisions which in turn help ensure your IFA business is as attractive as possible to the type of buyers you want to sell to and the sort of sale you want to achieve.

This means getting clear on certain main areas:

  • Ideal sale price your business can achieve
  • Whether and to what extent you will continue to be involved in the business
  • Type of sale – assets, shares, etc.
  • Anticipated date of sale

Preparing for sale

In the case of an IFA business that uses self employed agents or referral arrangements, consideration should be given to whether they should be offered employment status prior to sale to tie in their loyalty and make the business more attractive. Considerations should also be given to whether there will be any employment issues such as TUPE regulations to comply with after sale. 

You’ll also need to have Non Disclosure Agreements in place.

Terms of the agreement

Once you have an offer on the table, there is likely to be an important period of negotiation. Provisional Heads of Terms will provide the basic framework from which more detailed negotiations can work. 

Payment structure. Deferred payments aren’t unusual but are often dependent on performance. They may also depend on the extent to which you stay involved with the business and for how long. Factors such as recurring income and future economic conditions are therefore all going to be important. The sale agreement will need to provide for protecting both the buyer and seller, as well as specifying how performance will be calculated over the period of the earn out, i.e. will it be an aggregate across the whole period?

Warranties and indemnities. The seller will be required to give various warranties in relation to the state of the business and these will often be extensive. They will normally cover things like tax compliance and bookkeeping, undisclosed liabilities or litigation, and capital and assets. In addition to this, the buyer will usually seek certain indemnities or in other words, a requirement that the seller will compensate the buyer for loss incurred post-purchase on the occurrence of a specified event. Both warranties and indemnities will require careful legal consideration and drafting.

Restrictive covenants. Restrictive covenants are often an important element even if the seller is going to stay involved for a period of time or is retiring.  The law surrounding restrictive covenants is complex and to avoid future issues, it’s really important the terms agreed are legally enforceable and properly drafted.

Interim control. The sale agreement should contain details of what happens between exchange and completion and who has interim control (usually the buyer but subject to certain conditions).

The above is a summary of some of the main provisions but you can find out more, particularly in respect of Share Purchase Agreements, here: An Examination of a Share Purchase Agreement

Due diligence

Due diligence will always form a central role in the sale of any IFA business. You will need to disclose client lists, contracts, intellectual property, staff details, accounts, company or partnership documents (partnership deed, shareholders agreements, etc.), as well as all significant client and third-party contracts, finance and asset details, documentation and details of Anti Money Laundering and data protection compliance and details of any complaints. The buyer may wish to see different samples of client files to check FCA regulatory compliance and the seller is likely to submit a number of questions.  

Asset sales

In the case of an asset sale, clients will need to be formally transferred to the buyer. How easy this is may depend on your standard terms of business and whether these allow for it. Client consent will nearly always be required and it’s always a process that requires planning and tact.

Regulatory consent

In the case of a share sale, it will be necessary to obtain Change of Control approval from the FCA. Any person intending to become a “controller” of the business must apply to the FCA for approval. This can be a complex and time-consuming process and therefore needs to be factored into the timetable.

If you would like advice about selling an IFA business or the purchase of one, please get in touch. Our experienced team will be able to help with all aspects of the process from initial planning to any conveyancing, drafting, and resolving employment issues.

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