Transferring clients: Is buying a client book worth it? 

By Tracy Wright, Masthead Compliance Officer, and Sharren Bhagwandin, Masthead Compliance Officer 

Transferring or acquiring a client book can boost your financial advisory business, but it’s not without its challenges. We delve into the intricacies of client transfers and the factors financial service providers (FSPs) should consider before making this decision.  

There are many reasons why an FSP would like to expand their client base – increased revenue generation, diversification and business growth, to name a few. One way to achieve this is through the transfer or acquisition of a client book from one FSP to another.  

While this strategy can yield substantial benefits, it’s not without its hurdles. Many financial advisors complain that the absence of an industry standard governing this process muddies the water. For instance, some product providers allow bulk transfers if they receive a client bulk transfer declaration, signed by a Compliance Officer, confirming that all clients were notified of and consented to the transfer. Others require proof of individual broker appointments, which include signed broker appointment letters from each client affected by the transfer.  

Regulatory requirements 

Long gone are the days when client book transfers happened without the client’s knowledge or consent. Now, informing clients and getting their consent upfront, in writing or through other appropriate means like voice recordings, is a legal obligation under the Financial Advisory and Intermediary Services (FAIS) Act. The seller of the client book must inform their clients about the termination of their services, while the buyer must secure client consent or broker appointments for each client.  

Moving a client book can also mean changing product providers, effectively replacing a financial product. Under Section 8 of the FAIS General Code of Conduct (GCOC), when this happens, an advisor must fully disclose the actual and potential financial implications, costs and consequences of such a replacement to the client. In other words, an advisor can’t move a policy without first getting the client’s consent.  

Section 20(a)(i) of the GCOC stipulates that if a client cancels a policy on an advisor’s advice, the advisor must ensure that the client fully comprehends the implications of this decision.  

Furthermore, Section 4(1) of the GCOC requires FSPs to furnish clients with complete information about the relevant product supplier, making it obligatory for clients to be informed of the new product provider.  

Section 3(3) of the GCOC states that an FSP may not disclose confidential client information without the client’s written consent. During a client book transfer, this rule inevitably comes into play, as confidential client information is disclosed to the new advisor or product provider, making the client’s written consent mandatory. 

It’s also necessary to consider the obligations placed on FSPs by the Protection of Personal Information Act (POPIA). Safeguarding the integrity and security of client data is paramount during the transfer process. Both the seller and buyer must have the necessary processes and procedures in place to protect clients’ data. 

Furthermore, client notification is a critical aspect of maintaining trust. Clients need to be appropriately informed about the transition, the reasons behind it, and the potential benefits for them.  

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Treating Customers Fairly (TCF) Outcome 1 is also relevant to this process. It requires that customers are confident that they are dealing with firms where the fair treatment of customers is central to the business’s culture. If clients are transferred to a new FSP, they must be assured that the new FSP has their best interests at heart. In addition, TCF Outcome 3 states that customers should be provided with clear information and kept appropriately informed before, during and after the point of sale. 

Is it worth buying a client book? 

Some advisors may argue against it because of the process’ time-consuming nature. Buyers need to obtain signed broker appointment letters for all affected clients. While some product providers permit bulk transfers, they still require a signed declaration from the FSP’s Compliance Officer, confirming that all clients have been notified and have consented to the transfer. In addition, these product providers usually request a letter from the client book’s seller, permitting the transfer, alongside a product provider transfer form or a letter from the buyer accepting the business transfer. 

Buying a client book can also be a compliance risk if signed broker appointment forms can’t be obtained because clients don’t respond to communications or cannot be reached due to outdated contact details. Additionally, some clients may decline the transfer and seek financial advice elsewhere.  

On the flipside, acquiring a client book can drive client base growth and expand the business.  

Considerations before acquiring a client book: 

Before taking the leap, consider the following: 

In your own business: 

• Does your business have the capacity to ensure a smooth transition? For example, will it be able to inform and obtain consent from all clients while the rest of the business continues to operate optimally?  

• Does acquiring this client book align with your long-term business objectives? Does it fit into your growth plans? And, importantly, can you financially afford it? 

• Are the acquired clients a good fit for your business, both in terms of the services you provide and your business culture? 

With regards to the client book you wish to buy: 

• Assess the quality of the clients in the book, such as their revenue potential and the potential for cross-selling other financial products. 

• Determine a fair valuation for the client book. Factors to consider include the client’s assets under management, recurring revenue and the potential for future income. 

• Scrutinise the legal and compliance status of the FSP from which you wish to buy a client book. Do they have any past or ongoing litigation or regulatory issues? What type of reputation do they have in the industry? FSPs with a strong compliance culture are usually more likely to be committed to keeping and updating client records, which will make it easier to contact clients to inform them of the transition. 

Buying a client book may be a laborious exercise – and the returns might not always justify the effort. However, by doing your research – both within your own business and in the seller’s business – this strategy can indeed help you expand your horizons and grow your financial services business.