1. 1 year suitability expectation: If a Financial Advice Provider (FAP) purchases a book of clients from another business, then the Financial Markets Authority (FMA) expects the purchaser to undertake due diligence to ascertain the quality of the client advice records and that the FAP will take steps to ensure all associated client advice records are reviewed and updated within one year of purchase. In other words, don’t buy a book of clients so large that 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.
2. Make sure there are client records: In the past, some acquisitions simply included a list of names (with or without contact details) and ongoing trail commission. Now 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. 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.
3. Competence, knowledge and skill to advise the clients:  If the acquired clients need financial advice, then those providing the advice need to meet the competence, knowledge and skill requirements mentioned in the Code of Professional Conduct for Financial Advice Services. FAPs need to ensure before they acquire the 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. Just be sure you understand what you are getting yourself into and remember that our team is here to help.

Contact the team at Strategi Compliance if you need assistance with an acquisition.