Acquiring a book of clients is a quick way to grow an advisory business. However, Strategi‘s Dave Greenslade says the new advice regime has taken the gloss off this approach to business development.
Greenslade, the firm’s Executive Director, cautions business owners not to buy a book that is so large it would be hard to contact all the clients within 12 months.
“If a FAP purchases a book of clients from another business, then the FMA expects the purchaser to undertake due diligence to ascertain the quality of the client advice records and ensure all associated client advice records are reviewed and updated within one year of purchase,” states Greenslade in a blog post.
“In other words, don’t buy a book of clients so large you cannot contact all those clients within a year, collect information on them, and ensure the advice they received and the products they are using are suitable for their needs.”
Greenslade says some acquisitions simply included a list of names and ongoing trail commission.
“You will need to have sufficient client records to confirm you have enough information about the client to know the product and advice remains suitable,” he states.
“If there are no client files, then someone needs to collect the client information. If the purchaser has to build those client files, then this cost should be deducted from the purchase price.”
Greenslade also cautions that FAPs need to ensure that prior to acquiring a book of clients that the financial advisers have the competence, knowledge and skill to meet NZCFS5(V2) – especially if they joined the industry after 15 March 2021.
“Acquisitions remain a great way forward for many FAPs and no problem is insurmountable,” he says. “Just be sure you understand what you are getting yourself into.”