Written on 09/06/2022


Summary:  All sellers of IFA practices should have a clause in their sales contract to vendor along these lines…

“Purchaser agrees to pay reasonable costs of storage of the vendor’s client files that are not transferred or copied at sale and continue to be held in electronic format.”

When you sell your business where are you going to store the client files not transferred?  Retail Financial services is like no other industry. Complaints are still circulating at FOS from "pre-reg" days of 1988 –before many of those thinking of retiring were even out of school!  For buyers they must surely be aware that the Statute of Limitation 1980 does not apply in regulated retail financial services.  There is no seven year rule, and no 15 year absolute backstop that every other business has.  So the option of forgetting about ancient data is not an option.  This leaves liquidation and the transfer of assets (including data records) as the next best option. 

From the software vendor side of the coin, software companies that hold data, such as BAT must now destroy data without delay for ex members.  They have no reason to keep the data, and the ICO is quite clear that this sort of data should not be left hanging around where there is no purpose.  Being nice isn’t an option for software vendors, and so we must either destroy or charge ex-members for keeping it after contracts have been concluded.

The transfer of data is not as simple as it might at first appear.  That’s not something software vendors normally like to shout about.  Firstly, the easy stuff: data entry that can be downloaded to spreadsheets, and most systems, including BAT, are quite capable of giving you data-dumps into spreadsheets.  But what about those pesky attachments?  Emails.msg, pdf.pdf, word doc.docx, and scans and photos and copies of provider and lender materials and other documents?  If stored on hard drives under your desk or in a common shared drive this will require naming conventions, structured storage and searchable filing – all things that you take for granted in the appointment of an online software partner. 

Retiring IFAs and those selling up can either

  1. Scrape off what they need from the system then leave, or 
  2. Agree terms for access to data on the legacy systems.

Scraping data is time consuming and in multi-RI practices back up storage is, again, harder than it looks.  Putting the data into structured formats, or very loose Microsoft type files with free-type naming conventions is one thing, but has every document attachment been named?  If not then it needs to be filed manually into the correct file or folder, and misprints and misspelling do not sit well with search software.  Already you can sense the importance of systems in modern day retail financial services.  

You can of course train employees to double save client files, name them and store them on a shared drive as well as place them correctly into the chosen system.  But the risk of mis-naming and inconsistent filing is high, and so is the time spend.  Few firms will achieve consistent naming conventions across different employees.   

The FCA have recently dramatically tightened up the approval process and the appetite of firms to liquidate is diminishing equally rapidly, increasing the longevity of IFA firms, and thus the importance of long term document storage and access.

At BAT the compliance management software used by IFAC members, the ongoing charge per annum is £250 to allow former members access to the information.  The attached documents are stored in AWS, so you can of course connect up any other software to the same information.  The documents then do not need to move location, and you can in theory switch off BAT and connect with another provider – thus preserving the files in the cloud.  The problem with this approach is that the files are just a dump of files, with no structured access, a dark room of files piled from floor to ceiling –resembling the offices of life insurance heroes from the 1980’s, when most of the thinking stopped after a signature was placed on a form, and it was handed into the typing pool with a note. 

For those selling up, these decisions are not yours to make.  They are there to be made by the purchaser of your practice.  If the purchaser retains a right of claim against you personally, then you need to have access to these old files, and that’s where the nasty surprises come in.  If you want any software firm to keep and not destroy documents, then you need to sign a contract, and to pay for the service.  

The key to this is to then get the purchaser to pay the cost of storage, and here we suggest something along the lines of “reasonable costs of storage….”  Going forwards all sellers should have a clause in their sales contract with the purchaser along these lines…

“Purchaser agrees to pay reasonable costs of storage of the vendor’s client files that are not transferred or copied at sale and continue to be held in electronic format.”

Make sure that you, the seller, don't get left paying the cost of storage, or, worse still, are liable for work on files that you do not have access to.


June 22

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