Advisory Practice Due Diligence Checklist for Buyers
By the time a buyer signs a letter of intent on an advisory practice, they have usually reviewed summary financials, met the seller and formed a view of the clients. Advisory practice due diligence is where those impressions are tested against records and agreements. It is where a buyer learns whether revenue is as durable as it appears, how dependent clients are on the seller, what the client agreements allow and what risks come with the practice.
This checklist covers transaction and operational diligence. It is not a compliance guide and is not legal, regulatory or tax advice. Regulatory and contractual matters should be reviewed with qualified legal and compliance professionals. For the overall process, see our guide on how to buy a financial advisory practice.
1. Financial Records
- Several years of business tax returns and financial statements
- Monthly or quarterly revenue and expense reports
- Owner compensation, personal expenses and one-time items
- Existing debt, leases and obligations
- Bank statements that reconcile to reported revenue
2. Revenue Detail
- Revenue by client for several years
- Revenue by type: asset-based fees, planning fees, commissions and other
- Fee schedules and any non-standard arrangements with significant clients
- How revenue changed through different market conditions
3. Client Composition
- Number of client households and revenue concentration
- Client ages and life stages, and expected withdrawals
- Client tenure and historical attrition
- Relationships with clients’ family members or beneficiaries
- Which advisor or staff member is the primary contact for each significant client
These factors drive value; see our guide to financial advisory practice valuation.
4. Client Agreements and Transfer Considerations
- Standard client agreements and any variations
- Provisions on assignment, termination and fees
- What notice, consent or new agreements may be required for clients to continue with the buyer, which depends on the firms’ registrations, the agreements, the transaction structure and applicable rules
- Whether accounts may need to move between custodians or platforms
Clients do not automatically transfer. Our guide to advisory client retention explains how transition risk is managed.
5. Regulatory and Complaint History
- Registration status of the firm and advisors, confirmed through appropriate sources
- Any regulatory examinations, findings or disciplinary history
- Client complaints, disputes or pending claims
- Insurance coverage, including professional liability, and how prior acts will be covered
These matters should be reviewed with qualified compliance and legal professionals.
6. People
- Associate advisors, client service staff and their roles
- Compensation, agreements and any restrictive covenants
- Which staff members are important to client relationships
- Whether key people intend to stay after the transaction
7. Operations and Technology
- Client relationship management, planning and reporting systems
- Data ownership, portability and security practices
- Vendor contracts and whether they transfer
- Office lease terms, if the practice includes an office
8. The Seller’s Transition
- How long the seller will remain involved and in what role
- Which clients the seller will personally introduce
- Any restrictions on the seller’s future activities, to the extent permitted
- How seller payments relate to retention
Book Purchases
Buyers acquiring only client relationships focus most heavily on revenue, client composition, agreements and the transition. See our guide to buying a financial advisor book of business.
How Findings Affect Price and Financing
Diligence findings may lead to price adjustments, longer transitions or more of the price tied to retention. Lenders review many of the same items; see our guide to financial advisor loan requirements.
US Professional Funding works with advisors and established firms acquiring existing practices. Learn more about our investment advisory acquisition financing.
