Deferred consideration: what to watch
Most of the argument in an advice-firm deal is about the part you get paid later.
Almost every transaction has a deferred element, because the buyer is paying for income that has to survive the handover. That is reasonable. What is not reasonable is a deferred structure whose conditions you cannot influence once you have left.
Three things to check. What exactly is measured — retained clients, retained income, or assets. Who controls the thing being measured after completion. And what happens if the buyer changes the proposition, the platform or the fees in a way that causes the attrition.
A fair structure ties the earn-out to something you can still affect during the period you are still involved, and stops measuring once you are not.
Firms talk about recruitment. The harder number is how many principals have no plan for the day they stop.
The rules were written for the whole market. The cost of complying with them does not scale down.
Ten clients, forty per cent of the income, and a discount you will not see coming.
Thinking about your own timeline?
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