Member update 6th November 2020
Written on 09/11/2020

Charlie’s week

Its all very well locked down in summer, but this time around we are left to work with braziers, cans of beer and fingerless gloves.  And come this Remembrance Sunday - we are allowed to sing the National Anthem, but no other songs or hymns.  If you want to teach your children them meaning of irony, discuss that one! 

So what of my week?  I have just been hired to do some due diligence on an IFA firm that is a two man firm seeking to retire.  Interesting case for those considering the same thing.  The docs I ask for are PII returns, New biz book, turnover records (accounts), and last compliance audit done.  From that we get a complete picture.  

The firm I was examining had recently been left at the altar by another acquirer.  I wondered why.  Could it be this very same due diligence? I ask myself.  So I worked through the most complex new business book ever seen, and took note of some highly detailed recording of cases, a sincere effort to get things right, and an obvious care about the customer shone through all that I could see.  

The last compliance audit was quite unhelpful – endless checking of stuff from FCA related projects – SMCR, TCF, Product research documents and business model wasn’t quite what the FCA would like but it is unlikely to kill a deal, so hey-ho, what about the customer book that is where the value really lies?  We were nearly home when I got to the file checks part of the audit.

Five files checked in one year, against one hundred pieces of business and four failed as "unclear" due to lack of documentation, and the fifth the adviser hadn't paid for, so had been held back by the compliance provider.  Alarm bells.  In other words, the business, as a going concern can be marked down by about 50%.  It is highly unlikely that any mis-selling has taken place, but should any case go the FOS, the IFA will lose it every time.  So every single case is a potential time bomb.   This will play out in the for sale agreement, and mean the only realistic route is not to take over the firm as a going concern as planned, but rather transfer out the goodwill.

If you are approaching retirement, pay attention to file checks – compliance can make you money.  Oh yes, and what happened to that other party?  They too had walked away after looking at the suitability reports.   

John on holiday this week and next.

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