We have continued to see a good level of activity in the M&A market for investment advisory firms for both share and asset / client book deals. Whilst the immediate economic benefits of such a move can be readily apparent when acquiring a block of clients, the regulatory requirements for integrating these clients into your business can potentially cause a number of problems.

The FCA has just completed a review of a sample of firms that recently completed acquisitions focussing on the integration of clients into the new firm. In particular the compliance with client communication requirements and the suitability of the newly available services compared to client needs.

“…none of the firms assessed were able to consistently show that client needs were suitably considered… they did not focus enough on how clients were impacted by the acquisition.” FCA – Supervision review report, Feb 2017

A key message coming out of the review is that firms need to be ready to hit the ground running on client communication. Timing is as important as content with client communication and key communication needs to be in place prior to the acquiring firm charging fees to demonstrate that client consent has been obtained.

“Some firms told us of difficulties they had faced to meet the intended service standards for acquired clients because of inadequate planning or resources.” FCA – Supervision review report, Feb 2017

Some questions to consider from the FCA review:

• Client agreements – are they valid? If you have bought a client bank and not the shares you are unlikely to be party to the existing client agreement.
• Original firm advice – have you told your clients who is responsible and how they can complain?
• Services offered to new clients by your firm – have you told your clients about services and charges at the start of your relationship?
• Charges for replacement business – do you have a clear policy for charges in this area and does this align with the schedule of fees?
• Is replacement business suitable – can you demonstrate cost comparisons of alternative product offerings?

This review represents another step in the FCA’s continued broad focus on transparency and value for clients. Consequently demand on the internal compliance functions of IFAs to ensure that COBS requirements are being properly upheld is likely to increase.

For the full FCA report and findings click here.

The original guidance from 2012 which remains relevant for client bank integration can be found here.


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