Glossary
Deal language, in plain English
The words that come up when an advice business changes hands, and what they actually mean.
- Assets under management (AUM)
- The total value of client assets a firm advises on or manages. The usual headline measure of an advice firm's size, though recurring income is the better measure of what it earns.
- Asset sale
- A transaction that buys the client relationships and the right to service them, rather than the company itself. The most common structure in advice-firm deals.
- Share sale
- A transaction that buys the company, and with it the regulatory history, the liabilities and the contracts.
- Novation
- Replacing the client's agreement with the seller's firm with an equivalent agreement with the buyer. Requires client consent, which is why the communication matters.
- Recurring income
- Income that repeats without new advice being given — principally ongoing adviser charges. The base on which advice firms are valued.
- Client concentration
- How much of a firm's income sits with its largest clients. High concentration is priced as risk.
- Owner dependency
- The degree to which client relationships belong to the principal personally rather than to the firm. The single biggest swing factor in a small advice business.
- Deferred consideration
- Part of the price paid after completion, usually conditional on client or income retention.
- Earn-out
- A deferred payment calculated on performance after completion.
- Heads of terms
- The document setting out the agreed shape of the deal — price, structure, timing and conditions — before the legal work starts. Usually not binding, but hard to reopen.
- Due diligence
- The buyer's examination of the business: income, clients, files, permissions, past business and people.
- Past business review
- A review of historic advice to establish whether it was suitable. Defined-benefit pension transfers are the most common trigger.
- Professional indemnity (PI) cover
- Insurance against claims arising from advice. Run-off cover continues after a firm stops trading, and someone has to pay for it.
- Run-off cover
- Professional indemnity cover maintained after a firm ceases to trade, protecting against claims from historic advice.
- Appointed representative (AR)
- A firm that carries out regulated activities under the authorisation of a principal firm rather than holding its own.
- Directly authorised (DA)
- A firm authorised by the FCA in its own right.
- Consumer Duty
- The FCA's requirement that firms deliver and evidence good outcomes for retail customers.
- SM&CR
- The Senior Managers and Certification Regime: the FCA's framework for individual accountability.
- PROD
- The FCA's product governance sourcebook, which requires firms to define target markets and review whether their proposition still fits them.
- Suitability report
- The document recording why a recommendation was appropriate for a particular client. The main thing a file review examines.
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