Client files and the value of the firm
A buyer prices an advice firm partly on the client files: review dates, suitability evidence, service agreements and current data.
A buyer prices an advice firm partly on the client files: review dates, suitability evidence, service agreements and current data.
The state of the client files affects the price a buyer will pay for an advice firm, including between firms with the same recurring income, platform and client count.
A buyer of an advice business is paying for ongoing advice fees that continue after the adviser who earned them has left. The buyer judges how likely that is from the client files.
When was this client last reviewed, and is it written down?
Does the suitability reasoning stand up without the adviser in the room to explain it?
Is there a service agreement the client has seen, setting out what the ongoing fee buys?
Are the contact details, objectives, circumstances and vulnerability markers current, or is the file a 2018 fact-find with a few amendments?
When all four are in place for every client, a buyer can forecast the fee income. When a third of the clients have had no documented review in four years, the buyer lowers the price to cover what a review might find.
Files drift because the clients who ring you get reviewed and the clients who have gone quiet do not ask for your time. A client passed to you when a colleague retired eight years ago may still be invested and paying an ongoing fee without having been seen, because other clients' work comes first each week.
Under Consumer Duty, if a client pays for an ongoing service, the firm has to be able to show that the service is being delivered and that it represents fair value. A client with no recent review is difficult to evidence on both counts.
File quality has a large effect on a valuation and takes a long time to put right. Four years of drift cannot be repaired in the three months between agreeing heads of terms and completing. By then the buyer has seen the files and reflected them in the price and the deferred consideration.
The work on the files needs to start years before a sale.
Under Securo, trainee advisers join in the middle stages of the programme. They work through the clients who have gone quiet: they make contact, update the file, put the review back on an annual cycle and hand the relationship back to you or your team for the advice itself.
Each client then has a current file and a documented review.
How the timing of a sale affects the price, and what agreeing a floor when you join Securo changes.
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How the handover meetings, the client file, the acquiring firm and written commitments decide the service your clients receive after you retire.
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A long-established firm may have clients paying for an annual review they have not had. This is a Consumer Duty issue first and a valuation issue second.
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.