Due Diligence in Financial Planning Transactions

In a world where it is becoming harder to be a financial planner, FASEA, Ethics Exams and a looming 2026 deadline for university study, we’re finding it harder than ever to close a transaction in a reasonable amount of time. Pre-Royal Commission, a transaction could be taken to market, receive offers, go through due diligence, and contract sign off within 3 months. These days? Not so simple.  

Having recently concluded a few transactions, due diligence is now a very long, drawn-out process. There are multiple stages, conducted by multiple parties. So, let’s have a look at the different types of Due Diligence (DD).

Types of DD

Financial Due Diligence

Financial DD verifies that the income reported in the financials, or Information Memorandum, exist. During the process, financial statements, tax returns, Business Activity Statements, Commission statements and even bank statements are reviewed. We want to ensure the income that comes into your business (net of GST) matches what is presented for sale.

Compliance Due Diligence

Compliance DD is as the name suggests. It looks at compliance of the practice, through file reviews. What used to be a file review, a quick tick and flick, has turned into a lengthy drawn-out process with some small purchasers spending upwards of $7,000 on consultants to complete this.  

The process includes the purchaser’s due diligence. There are exit interviews and audits with the vendor’s licensee. And then, there are compliance reviews by the purchaser’s licensee.  

What this means is that the tiniest issue can result in a change to a whole deal. In a smaller transaction (circa $400,000 revenue) we were involved in, the purchaser was accepting of some risk with file reviews coming from a vendor licensee. The purchasing licensee was not. The deal changed at the last minute; it was restructured to prevent any risk to the new licensee.

Human Resources Due Diligence

The biggest risk to large transactions lies around key staff. Losing a key staff member; cultural fit; realising they’re underpaid; poor record-keeping of leave accruals; all can be big issues for a purchaser. Most purchasers want to ensure the cultural fit for their existing team works, and that the employees coming over are consistent for clients in a transition period and beyond.  

In most transactions the employees of the vendor’s business may not be aware of the transaction. This works well to not ‘spook’ the team, and make them contemplate leaving, however it makes meeting the team difficult. At some point, a purchaser will want to meet the team and ensure that they are a cultural fit.  

For HR DD, it is important to review employment contracts, leave accruals, salary review processes, performance review processes, management structures, and gain an understanding of the culture.

When is enough DD enough?

There is no riskless transaction. At least, there should not be. We have seen some purchasers and licensees structure deals for the full payment to be made upon transfer of clients, like a referral arrangement.  

Clawbacks exist for a reason, and that is to protect the purchaser for clients that do not transfer over.  

A referral arrangement, where you pay a percentage of what comes over, means there is no true incentive for the purchaser to work hard to win the clients. They simply take the clients they want. If their circumstances change, say they lose a key paraplanner, and they go into survival mode servicing the clients they have, not chasing to convert the new ones, this is a material risk to the vendor. Whilst there are no riskless situations, there are steps which can make in the lead up to a sale to ensure all parties are best prepared.

Common issues and how to future-proof your business

We have listed a few of the common issues found in transactions. These issues when avoided can ensure a stress-free transaction.

  • Simply servicing your client is not enough, documentation is required to evidence that you service them.  
  • Having a solid workplace culture with your team does not account for much if they do not have contracts with a restraint clause in them.  
  • Having a great client base but with no ability to run reports and summarise them in a timely manner, means preparing a timely Information Memorandum is going to be hard work. 
  • Out-of-date information, poor information and taking too long to compile your client list and Information Memorandum, means that your data will raise flags at Due Diligence, and likely need to be updated.  
  • Without an adviser by your side means you may be emotive and unnecessarily stressed during the transaction, which could potentially lead to irrational behaviour.

If you want to talk through your future in financial planning call us at Accru Hobart.

About the Author
Eva Ewe
Eva’s straightforward approach to managing clients’ financial affairs, along with her meticulous attention to detail, ensures that clients are well taken care of. Eva thrives when faced with a challenge, and she is highly skilled in determining the most effective means of tackling all challenges on the way to providing customer satisfaction.
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