Novation, explained
What novation means for a client, and why Securo writes it into the arrangement from the start.
What novation means for a client, and why Securo writes it into the arrangement from the start.
Novation comes up often when an advice business is sold. Novating clients and selling them are two different transactions.
Novation is the substitution of one party to a contract by another, with everyone's agreement, so that the new party steps into the original position. For an advice firm, the firm named in the client’s ongoing advice arrangement is replaced by a different firm, and the arrangement continues.
It needs the client’s agreement, and the existing arrangement continues under the new firm.
Usually little changes that the client can see. The ongoing service continues, the assets stay where they are, and the adviser is different. The client is told, and has to agree. In practice the client consents to the transfer of the servicing relationship, and the existing products stay in place.
What does change is who is responsible. Advice given before the transfer, and any liability attached to it, does not automatically travel; where it sits depends on how the transaction is structured, and it is one of the things buyer and seller negotiate hardest over. This is why a buyer asks detailed questions about your past advice.
An acquisition is a purchase. The buyer pays for the right to the future income and takes on the relationships, and the seller is paid. A novation is a transfer of the servicing arrangement, which may happen with a payment or with none at all.
Novating clients to another firm does not by itself mean you are paid for them. Payment has to be agreed separately.
The relevant sentence in the programme document is this: if terms cannot be agreed at the end, your clients are novated to a host of your choosing.
It means the arrangement has an exit that does not require Equity & General's agreement on price. You are not forced to accept a price for lack of any other route.
Any succession arrangement whose only ending is the sponsor's own offer leaves you negotiating with somebody who knows you have nowhere else to go. Check that the fallback is written down.
Those five questions are reasonable to ask of anybody, including us.
Fifteen questions about your clients, the transaction and the buying firm.
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The documents and records a buyer asks for, and how to have them ready before the request arrives.
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How to reduce owner dependency, which lowers a valuation and can be reduced with one to three years of work.
Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.