Acquiring or selling a business

It seems that barely a week goes by without yet another acquisition or two being reported in the financial media. Some reflect the continued onward march of the increasing number of ‘consolidators’ while others are merely a smaller scale acquisition spurred by business owners seeking an exit route to retirement.

Either way, there are some questions that keep popping up around buying or selling an adviser business and we explore those briefly in this article.

The FCA has a mandatory interest in (most) acquisitions and has shown an increased focus on certain aspects of the acquisition process, in particular, how the acquisition will affect clients.  They expect firms to show that clients’ needs were suitably considered as part of the commercial decision. The following aspects must be considered:

  • Consistency of investment solutions;
  • Potential conflicts and client detriment arising from any mass migration of clients into the firm’s favoured investment solutions;
  • What are the differences in the service levels and charges between the acquiring and ceding firm and how these will be reconciled;
  • Are acquired customers in line with the firm’s desired target market/segmentation (PROD).

The FCA has made it clear that clients should not be automatically aligned to the acquiring firm’s Centralised Investment Proposition (CIP). Any switch of product/provider/platform should only be recommended after establishing it as suitable for the client and in the client’s best interests. All relevant costs to be incurred by the client need to be considered as part of the suitability assessment (see COBS 6.1A.16G).

The FCA’s mandatory requirements differ, depending on the basis of the acquisition, as follows:              


Prior FCA Approval Required?

New disclosure and Client Consent Required?

Acquire a business, making no changes to the entity, other than ownership.

YES – Prior approval, Change of Control Application

NO – provided nothing about the original firm’s proposition has changed or is changing

Acquire a business, changing any aspect of the ceding firm’s disclosure information/proposition

YES – Prior approval, Change of Control Application

YES – new disclosure and individual client consent is required

Acquire clients (asset purchase)

NO – the FCA do not require to be notified

YES – new disclosure and individual client consent is required

As can be seen from the table above, there is a distinction between acquiring a business and acquiring a client bank. Only the business acquisitions need to be notified to the FCA. Change of control notification requirements are quite involved, with exemptions and exceptions. However, it is clear that a total acquisition of a regulated firm is notifiable. In addition, prior approval from the FCA is required in order for the acquisition to proceed.

Change of Control Application timescales
The FCA is seeing an increased number of Change of Control applications being made. Along with increased scrutiny, this is resulting in the FCA taking longer to complete the change of control process and provide approval.  It is increasingly important to make application as early in the process as possible. 

Client Communication
Communication of relevant information to clients’ needs to be clear, fair and not misleading and provide all the required information so that the client can make an informed decision. Below we summarise the information that needs to be provided to a client in the event of an acquisition that results in a different legal entity being the regulated firm in place of the selling firm. 

FCA rules require firms to give clients a written document (on paper or other durable medium), setting out the terms of the agreement between the firm and the client (COBS 8.1.2R, non-MiFID firms and COBS 8A.1.4 EU for MiFID, equivalent third country and optional exemption business).

As all disclosure and contracts (e.g. client fee agreement), prior to the acquisition, were between the client and the selling firm, they are not legally valid or compliant after the acquisition. Accordingly, all disclosure and agreements must be refreshed, except in the case of the first scenario above.

Otherwise, the acquiring firm must communicate with all the acquired firm’s clients. The communication should:

  • Outline the proposed transfer, including the proposed effective date;
  • Request the client confirms in writing their agreement to the transfer;
  • Make clear whether responsibility for historic advice is being assumed by the new business and if not, who to approach should the client wish to complain about that advice;
  • Provide appropriate disclosure documents including information about the acquiring firm, its services and costs; and
  • Enclose a new service/fee agreement for clients to sign if they wish to engage with those services.

Specifically, the client should be informed of any key differences from the services (for example, frequency of reviews or rebalancing) and costs (including VAT status where relevant) that applied under the selling firm.

Importantly, clients should be informed that they can opt out of the transfer or any ongoing service the acquiring firm is offering. 

A follow-up communication should be sent to all clients who have not responded within, say, two weeks. It may also be appropriate to telephone non-responders. 

Data protection considerations
Where the firm is being acquired outright but will continue to trade as before, with the same name and legal entity being the regulated entity, there is no change of data controller and all existing data protection paperwork remains valid. Otherwise, whether clients are acquired as part of a client bank purchase or a complete acquisition of a firm, the acquiring firm is a new data controller and must issue its privacy statement to the clients and establish a lawful basis for processing that personal data.

That sounds easy enough. Just issue the standard paperwork and, if the firm’s standard lawful basis is client consent, obtain that consent.

However, it is not as easy as that. The acquiring firm does not have any lawful basis for using client data to write to the clients in the first place!

This would appear to be a Catch 22 situation. How can the following requirements be satisfied?

  • The seller is entitled to transfer the database to the buyer.
  • The buyer is entitled to use the database under the relevant data protection legislation for the purposes that he intends to use it.

It is possible that the selling firm’s existing privacy notice/lawful basis process made explicit reference to this possibility. Possible, but unlikely. 

So, in the absence of a pre-existing explicit lawful basis to transfer the data to the buyer, there is a requisite prior step whereby the selling firm contacts the clients to establish a lawful basis for transferring the data.

The selling firm will need to include in this pre-sale communication to clients that, as part of the sale of the business (or client bank), the client’s personal data will be transferred. The lawful basis for doing so should be explained to the client. The lawful basis most likely to be valid is legitimate interests.

The clients must be informed that the firm is relying on legitimate interests as the lawful basis for transferring the data and explain what those interests are. 

The plain English explanation of legitimate interests is that it is in the selling firm’s legitimate interests to transfer the data in order to facilitate a continuing service to the clients and also in the client’s legitimate interests for that service to continue. The client, of course, should be informed that they can object to the lawful basis and to the transfer of their data.

Legitimate interests comes with quite a few conditions and we recommend that firms refer to the ICO website or a data protection specialist for further guidance.


Ongoing adviser charges and trail commission
This is the aspect that is often poorly understood by both buyers and sellers. The headline principles are as follows:

  • Trail commission results from a contractual arrangement between the selling firm and a provider and the seller can authorise payment of future trail commission to the buyer. This is what is widely referred to as ‘novation’. In this context, novation means replacing one party to a contract with another, by mutual agreement of all parties and can be implemented, in bulk, by contacting each relevant provider.
  • Ongoing adviser charges arise from a contractual arrangement between the selling firm and each client. The buyer cannot receive any ongoing facilitated adviser charge, and the provider cannot facilitate it, unless and until a new agreement has been signed by the client in relation to the acquiring firm.

The following additional points should be noted:

  • While trail commission can be novated in bulk with each provider, the buying firm must inform each client that this is being done, declare the amount and describe the ongoing service that will be provided in return;
  • The ongoing service must be at least an annual assessment of suitability;
  • The client can object to the transfer of commission and the offer of service;
  • Different providers will have different processes in relation to ongoing facilitated adviser charges. Origo provides a template form intended to make the process easier. It is not clear how this meets the requirements of COBS 6.1B.9 which states that firms that facilitate adviser charges must obtain and validate instructions from the retail client.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

The increased focus on the impact of acquisitions on clients emphasises the importance of carrying out comprehensive due diligence by both sellers and buyers at an early stage in the acquisition process.  

Firms acquiring clients will encounter different challenges.  It is important that the start of the acquisition journey includes consideration of the differences in the propositions offered to clients.

And the FCA and Data Protection aspects must be fully understood and implemented as required.

Action Required By You

  • Firms considering acquisitions need to consider the client outcomes as part of the commercial viability assessment;
  • The timing of any acquisition needs careful consideration so that all the requirements can be met and FCA approval obtained in time;
  • Data protection compliance is difficult to navigate but essential to achieve;
  • ATEB can assist with the due diligence requirements, the application process, CIP considerations and other associated aspects;
  • Contact your usual ATEB Consultant for further assistance or contact ATEB directly.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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