What due diligence looks at

The documents and records a buyer asks for, and how to have them ready before the request arrives.

8 min read · Guide for advisers

Due diligence works like an audit, and the questions are predictable. You can prepare for them, and preparation helps keep the price from moving between heads of terms and completion.

1

Your clients

2

The files

Buyers spend most of their time on the files, and what they find affects the price.

  • When was each client last reviewed, and is it documented?
  • Is there a signed service agreement, and does the service described match what happens?
  • Does the suitability reasoning stand on its own?
  • Are vulnerability considerations recorded?
  • How is Consumer Duty fair value evidenced for each client household?
3

Past advice and events to disclose

Examples include defined-benefit transfer advice, unregulated or illiquid holdings, a concentrated position that looked sensible at the time, a settled complaint, and a period when file standards slipped because somebody was ill.

None of these need stop a transaction. Each of them does more damage if a buyer finds it first. If a buyer finds an issue you did not disclose, they will question what else you have not mentioned.

4

The business

5

Your own plans

A buyer who intends to look after your clients will want to know what you have promised them beyond the service agreement. This means the things you have said in meetings over twenty years, for example: Whether you always take their calls. Whether you go to the funerals. Whether the relationship is with a firm or with a person.

If a buyer does not ask about them, ask the buyer how those clients will be looked after.

6

Preparing for it without a corporate-finance budget

Prepare three things, which a well-run firm should have anyway:

  1. One list of clients, current, with the review dates on it. If it takes a fortnight to produce, a buyer will notice.
  2. A written note of every issue you expect to be asked about. Then decide, in advance, how you are going to say each one.
  3. Three years of accounts with the adjustments already worked out, by somebody who does this. Your accountant can prepare these quickly.

The readiness check is a twelve-question version of the same exercise, and it takes two minutes.

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Talk to Steven Bates about Securo

Steven 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.

Send a note to Steven 020 8396 0486