Business

Disclaimer: This article discusses buying and selling a book of business. It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

When it comes to any transaction, several cliches apply. To be forewarned is to be forearmed. You don’t want to be penny-wise and pound-foolish. Haste makes waste, and you should look before you leap.

This is especially true when it comes to buying and selling a book of business.
We’ve worked with a number of clients who are thinking about succession planning. They may be considering retirement or want to transfer their practice for other reasons. We’ve also worked with newer advisors who wish to gain additional clients by buying a book of business from another advisor.

In both instances, we find many advisors do not fully realize how complex these transactions truly are. Over the course of handling these purchases and sales, we have noticed some common pitfalls. In this article, we will explore these challenges and share how you can avoid them.

Pitfall #1: Failing to Understand Asset vs. Share Deals
Choosing between a share or asset purchase is crucial when buying a book of business, as it impacts what you acquire, the liabilities you assume, and the tax implications for both parties.

Share Purchases involve buying the seller’s company, including all its assets and liabilities. While many believe purchasing shares automatically grants them rights to the book of business and its income stream, this is not always true. For tax reasons, sellers often prefer share deals, as they may benefit from capital gains tax treatment.

On the other hand, asset purchases involve acquiring specific business assets, such as client lists and contracts, while leaving liabilities with the seller. Buyers generally prefer asset deals because they can selectively acquire assets and often benefit from tax deductions like depreciation. This option provides more flexibility and a cleaner transfer for the buyer.

Under CIRO (the Canadian Investment Regulatory Organization) regulations, corporations cannot receive income from investment portfolios; it must go to the individual licensee who owns the revenue rights. With these resitrctions in mind, obtaining an income stream through a share purchase requires careful, long-term planning and specific strategies, which many sellers have not implemented.

You must understand these distinctions to align the transaction with your expectations.

Pitfall #2: Not doing your due diligence before buying a book of business
Thorough due diligence is essential when buying a book of business to avoid hidden risks and liabilities. After all, this is a large transaction that will impact your business for years to come.

Do you really understand the value of what you are purchasing? Are you paying top dollar for a book that is worth less?

Will the seller be involved in the transition process? How will you handle client communication?
Understanding the cultural and strategic fit is also vital to ensure smooth integration and retention. Without proper due diligence, buyers risk overpaying or facing unexpected challenges that could impact profitability.

To protect your investment, work with experienced advisors to navigate the complexities of the process.

Pitfall #3: Waiting to see what CIRO will do before your sell your book of business
While the CIRO has indicated that it is considering changes to its regulations, you do not want to hinge major business decisions on what they might do. Regulatory bodies can take years to implement changes, and waiting for approval could mean missing out on immediate opportunities. Instead, both buyers and sellers should focus on what they can control.

If you plan to sell your business book in the next few years, it’s time to start preparing now. This includes structuring your business to make future sales possible, consulting with legal and financial advisors, and understanding the tax implications.

Pitfall #4: Not Speaking with an Expert to Navigate Your Options
Navigating the sale or purchase of a book of business can be a complex and nuanced process that requires careful consideration of tax implications, deal structures, and potential regulatory changes. At Beeksma Law, we have experience helping financial advisors plan strategically for both buying and selling their businesses.

If you are thinking about selling your book of business or are interested in exploring your buying options, reach out to us today to discuss how we can assist you. Our team can help set up the necessary structures and provide guidance to ensure you’re well-prepared, regardless of what the regulatory landscape looks like in the future. We also partner with other professionals, such as valuators, to make sure that you’re making informed choices about your business.

Beeksma Law: Focused Services for Financial Advisors
At Beeksma Law, we have guided financial advisors through the complexities of buying or selling a book of business. THis includes navigating regulatory challenges, conducting thorough due diligence, and structuring deals to optimize tax and financial outcomes.

Whether you are preparing to sell, looking to expand through acquisition, or need to understand evolving regulations from CIRO or other regulatory bodies, our team provides tailored legal solutions to meet your specific needs. Reach out to us today to learn how we can help you protect your interests and achieve your business goals in the financial services industry.

Disclaimer: This article discusses changes to buying and selling a book of business.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

When it comes to financial advisors buying and selling their book of business, you need to consider several regulatory challenges. One area of interest to many in the financial services industry is whether advisors will soon be allowed to operate through professional corporations in the same way that doctors, lawyers, and realtors can.

The rules are still in flux, but CIRO proposes changes that could be on the horizon. This article will explore these proposed changes and what they mean for you and other professionals in the financial services industry.

Current State of Financial Advisors Operating Through Corporations

Currently, financial advisors are not permitted to own their book of business through a corporation, as other professionals can. Selling your practice as a share sale rather than an asset sale is limited, creating challenges for those looking to exit or transfer ownership of their business. We spoke about these challenges at length in this article.

While CIRO (the Canadian Investment Regulatory Organization) has been contemplating allowing advisors to use professional corporations, those changes have not yet been finalized.

Understanding the Canadian Investment Regulatory Organization’s (CIRO) Role

Financial advisors in Canada are governed by the Canadian Investment Regulatory Organization, which was formed from the merger of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). Before the merger, IIROC regulated investments related to the stock market, while the MFDA oversaw mutual funds.

This regulatory division resulted in differing rules for how financial advisors and investment dealers could operate.

For instance, mutual fund advisors have historically been allowed to run their business through a registered corporation, giving them more flexibility in selling their book of business. In contrast, IIROC-regulated investments could not be operated in the same manner, restricting their ability to transfer revenue rights through a registered corporation.

What Changes Might CIRO Bring?

CIRO has proposed changes that could allow all financial advisors, including those handling IIROC-regulated investments, to operate through professional corporations. This would be similar to how lawyers, doctors and other professionals are able to form professional corporations.
If it approves this change, advisors could transfer the revenue rights of their book of business through a corporation. However, there is still no clear timeline for when CIRO might propose or approve these amendments.

If and when the rules are updated, it could significantly simplify the process for financial advisors looking to sell their business. They would then have the option to sell their book of business as a share sale, allowing for greater flexibility and potentially reducing the time and complexity involved in such transactions.

Implications for Financial Advisors

For financial advisors, the potential for CIRO to allow the use of professional corporations is significant. It could bring a number of benefits:

1. Simplified Sales Process: Advisors could choose to sell their business as either a share sale or an asset sale, depending on their specific needs and circumstances, impacting the type of compensation received.
2. Flexibility in Ownership Structure: With the ability to own their book of business through a personal corporation, advisors could have more options for tax planning, succession planning, and overall business management, including structuring their compensation in more advantageous ways.
3. Reduced Need for Workarounds: Currently, some advisors must put complicated workarounds in place, but a change in CIRO’s regulations could eliminate the need for these strategies.
4. Alignment with Other Professions: This change would align financial advisors with other professionals like doctors, lawyers, and realtors, who already have the ability to operate through professional corporations.

What Can I Do Until CIRO Makes Changes?

While the industry waits for CIRO to allow financial advisors to operate through professional corporations, you can act now to prepare to sell your book of business. Advisors looking to transition their practice in the future should consider laying the groundwork well in advance.

Understanding your options and developing a strategy that aligns with both your financial goals and regulatory constraints can make give you the freedom you need when you are ready to sell. The key takeaway is not to hinge your business decisions solely on what CIRO or any other securities regulatory body might do. By planning and working with experienced professionals, you can be prepared for any scenario and make the most of your opportunities.

At Beeksma Law, we help financial advisors understand and navigate both purchases and sales. If you’re thinking about selling your book of business or want to discuss your options for structuring your advisory practice, reach out to us today.

Our team takes the time to get to know you and your specific situation so that we can provide guidance tailored to you! Get in touch today to learn how you can plan for both the current environment and any potential future changes.

Disclaimer: This article discusses selling a book of business.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

Are you a seasoned financial advisor looking to retire and transition your practice? Have you thought about selling your book of business to a newer advisor looking to expand strategically?

This is an exciting time in your career. You put in a lot of work to build your business, and how satisfying to find the right advisor looking to buy your business and carry on your legacy of excellence. 

While this can offer a significant opportunity and help advisors on both sides, it’s essential to approach the process with caution and carefully evaluate various factors before moving forward. 

In this blog post, we’ll delve into what you need to know about listing your financial advisor practice for sale and provide valuable insights to help you make informed decisions.

Understanding the Unique Nature of Book of Business Acquisitions

Unlike a transaction to buy a business like a café or a store, your book of business entails dealing with predominantly intangible assets such as client relationships and revenue streams. This presents a unique set of challenges, including how to assign value to these intangible assets and plan for a smooth transition post-acquisition.

The Buyer’s Due Diligence When They Find a Book of Business for Sale  

When we assist buyers who want to buy a book of business, we outline the due diligence that we recommend, listing the items below and many others. 

The buyer will consider how bringing on the new business will impact their financial advisory practice. 

The buyer must first consider if they can handle the influx of new business without neglecting their existing client base. They’ll also consider whether they have the financial resources and cash flow to afford the purchase price and sustain the business post-acquisition. 

Expect a valuation as part of the selling process.

A savvy potential buyer will want to have a professional valuation of the sale to make sure that the value of your book of business is clear. 

Start building your plans now if you’re looking to sell a financial advisor book of business 

The foundational work that you need to do before selling your business should begin years before you actually find someone to buy your financial advisory practice. 

For example, it’s a common misconception that ownership of a book of business automatically transfers with a share purchase of a corporation. However, this assumption often overlooks important regulatory considerations.

The Canadian Investment Regulatory Organization (CIRO) prohibits corporations from receiving income generated by investment portfolios. Instead, this income must be allocated to the individual licensee who holds the revenue rights. Consequently, selling the shares of a corporation does not necessarily entitle the buyer to your income stream without careful planning.

While certain strategies can be employed to address this issue, it’s noteworthy that many sellers have not undertaken the necessary groundwork and planning to make them feasible. If you are thinking about a succession plan, or selling your financial practice, reach out to us today!

Putting a transition plan in place 

The journey doesn’t end once the deal is sealed. For someone who buys a financial advisor’s book of business, a well-thought-out transition plan is crucial for integrating the acquired business seamlessly into your existing practice. This includes client communication strategies, staff integration plans, and seller support during the handover period. Clear communication and meticulous planning are key to a successful transition.

You have been committed to your clients for many years – how are you going to ensure they are in good hands and can start building a new relationship with the financial advisor that will now be handling their affairs?

Whether you want to sell or buy a book of business: Beeksma Law provides specialized legal advice for financial advisors 

Buying and selling a financial advisor’s book of business is no small transaction. For the buyer, it represents the path that their business will take for years to come. For the selling advisor, it is the culmination of a career’s worth of effort. 

It’s too important to leave to chance. Instead, you need focused expertise. At Beeksma Law, we have experience in providing comprehensive legal services tailored to the unique needs of financial advisors. From helping you prepare before selling the book of business to preparing the purchase agreement and more, our team is dedicated to helping you embark on the next chapter of your business journey with confidence. Reach out today!

Disclaimer: This article discusses purchasing a book of business.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

If you’re a newer financial advisor, you might consider purchasing a retiring advisor’s business. This can be a strategic way to grow your business, but before you buy a financial advisor book of business, there are some factors to consider. 

For example, you want to ensure that you can handle new clients without sacrificing your current client base. You’ll also want to ensure that it’s the right fit for you and that you have the cash flow to afford the purchase price. 

Most importantly, you’ll want to make sure that the transaction is set up properly and that you do your due diligence first. In this article, we will discuss what factors you need to consider. However, each transaction is unique, which is why you’ll want to contact our team and discuss the details specific to your purchase. 

Why a book of business acquisition is unique

If you’re a financial advisor and find a book of business for sale, you should know that it is significantly different than other business purchases. For example, let’s say you were buying a cafe. That business has tangible assets, such as equipment and merchandise, which can be easily valued and assessed. 

Buying another advisor’s financial practice does not have that. It is primarily composed of intangible assets, such as client relationships and revenue streams.

This raises many questions, including:

• How do you assign value to intangible assets like client relationships and revenue streams?
• How will you transition into this business? Will there be a succession plan?
• What will the role of the selling advisor be after the transaction? 

Many transactions we see lack the legal structure that should be in place. These deals are too large and worth too much to your future to leave to chance. Understanding these differences is crucial not only to acquiring the business but also to successfully integrating it into your current practice.

Is it a share purchase or an asset purchase (or both)? 

This is one of the most important questions you’ll need to answer, and you’ll want to make sure that what you purchase matches what you expect to get. 

First, what’s the difference? Share purchases involve acquiring ownership of the seller’s company, including all assets and liabilities. On the other hand, asset purchases entail acquiring specific business assets, such as client lists and contracts, while leaving liabilities behind. 

Many believe that a corporation owns a book of business and that a share purchase will entitle them to it. In many cases, this is not true, at least not without careful planning. 

CIRO (the Canadian Investment Regulatory Organization) does not currently allow corporations to receive the income stream generated by investment portfolios. It must be paid to a person, the licensee, who owns those revenue rights. Therefore, a purchase of the shares of a corporation would not entitle the buyer to receive that income stream. 

There are some strategies that can be implemented, but the vast majority of sellers have not done the years of foundational work and planning needed to make them possible. 

Should you require a valuation on the book of business? 

Short answer: yes. Let’s explain why. 

A comprehensive valuation provides insights into what you’re purchasing. These transactions involve a lot of money – you are buying a business! – and you want to make sure that the book is worth it. 

This can also impact your tax bill at the end of the year. Your taxes will be based on the value of the transaction. If you have overpaid for another financial advisor’s book of business, you are still on the hook for that tax bill. 

At Beeksma Law, we are connected with experienced business valuation professionals who can help you determine what this business is worth. 

Is there a transition plan after you buy a book of business?

The deal is not over once the transaction closes. 

You must consider a transition plan to integrate new clients into your existing business seamlessly. A well-thought-out plan will outline the steps and timelines for integrating the acquired business. It will also lay out client communications, integrating staff and technology and how the seller will support the buyer during the handover period. 

Communication is crucial; spelling out these plans within your agreement will prevent many headaches. 

Beeksma Law: Specialized legal advice for financial advisors 

Many clients I speak to about this type of transaction are unaware of the legal complexities involved in purchasing a book of business. However, at Beeksma Law, we have handled these transactions for many professionals in the financial services industry. We are happy to offer comprehensive legal services tailored to your unique needs. 

From structuring the transaction, negotiating and drafting the agreements and navigating regulatory requirements, we can help you start the next chapter of your business on the right foot. 

Reach out to our team today to learn more.

Disclaimer: This article discusses incorporating a business in Ontario.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

So you’re growing your business, and it’s time to consider incorporation. (If you’re unsure if it’s time to incorporate, we have an article on the pros and cons of incorporating your business.) 

Now, you’re likely deciding whether or not you need a business lawyer. After all, that is an expense in your business and every dollar counts. The question arises: do I really need a lawyer to incorporate my business? Instead, can I use my accountant or an online service like Ownr?

As with most legal matters, there’s no one-size-fits-all answer. It depends on various factors unique to your situation and business goals. This article explores some guiding principles and scenarios to help you make an informed decision.

However, we understand that each business is different, and generic advice may not fully address your needs. We encourage you to book a complimentary consultation with our team. By discussing your specific circumstances, we can provide personalized guidance tailored to your business.

What are the drawbacks of incorporating online? 

While online incorporation services are simple to complete, their simplicity can actually be their downfall. They often provide basic, one-size-fits-all solutions, overlooking the nuanced intricacies of your business objectives.

Without a nuanced, strategic look at your business and future goals, your company may struggle to adapt and thrive in an evolving landscape. This can limit your future growth and long-term success. 

As with many of our clients, your business will change over time. As it evolves, you’ll likely encounter situations requiring adjustments to your initial incorporation documents. These changes could include updating shareholder agreements or modifying corporate structures. In such cases, you’ll need legal advice to make these amendments correctly. Therefore, while online incorporating services offer convenience, they may not provide the comprehensive support required to navigate the complexities of business growth and legal compliance over time.

When do I need a lawyer to incorporate a business in Ontario?  

Complexity and Growth

Incorporating with a lawyer becomes essential when anticipating business growth or encountering complexity in the business structure. As your business expands, you may require different classes of shareholders or undergo corporate restructuring to maximize tax benefits and accommodate evolving needs.

Strategic Planning:
Lawyers provide invaluable strategic planning that online services lack. They delve into your long-term business goals, ensuring that your incorporation aligns with your aspirations. By asking critical questions about your business’s trajectory, they help tailor the incorporation process to your specific needs and objectives.

Coordination with Accountant
Accountants often recommend incorporation to optimize tax planning. Involving a business lawyer allows for seamless coordination between legal and financial strategies, making sure you get the most out of your incorporation.

When might you not need a lawyer for your incorporation? 

It’s not to say that every single incorporation requires that you hire a lawyer; nor is it a legal requirement under the Business Corporations Act. There are a few instances where you wouldn’t need to speak to a lawyer or law firm specializing in corporate law. 

For some new businesses that are simple and have no plans for growth, you may be able to get away with legal services provided by an online provider (such as Ownr). In other instances, experienced entrepreneurs may have a history of successful business ventures. They may have already worked with a business law firm and are well-versed in the incorporation process. They may not require the personalized assistance of a lawyer for each specific business venture. 

How will a business lawyer help you after you’ve filed your articles of incorporation? 

Think of a business lawyer as a trusted ally, not just during the initial incorporation phase but throughout your business journey. They’re there to help with all your legal needs, from drafting contracts to ensuring compliance and even guiding you through expansion plans. Plus, they’ll make sure your minute book is always up to date, keeping all your critical corporate documents in order.

As your business grows and evolves, you’ll encounter many legal situations. That’s where your lawyer steps in, offering expert advice on everything from business operations to contract negotiations. Whether you’re sealing deals or resolving disputes, their legal expertise ensures you’re always on the right track. With their help, you can navigate the complexities of business and contracts with confidence.

More Resources for Ontario Business Owners 

At Beeksma Law, we have prepared several blogs designed to help business owners. Perhaps you are deciding between a sole proprietorship and a federal or provincial corporation. You might need answers to common questions, like how to register my business name. Or you may be wondering what resolutions and other legal documents you need to keep in your minute book. If so, please look at our previous blog articles for more information.  

Beeksma Law:  Strategic legal advice for small business owners 

In conclusion, when considering whether you need a lawyer to incorporate your business in Ontario, it’s essential to weigh the benefits of legal assistance against the potential drawbacks of going it alone. While it may be possible to incorporate a business without a lawyer, especially for simple structures or experienced entrepreneurs, Ontario’s business regulations and the advantages of strategic planning underscore the value of hiring a law firm specializing in business law.

A lawyer specializing in business law can provide invaluable guidance throughout the incorporation process, ensuring compliance with the Ontario Business Corporations Act and other regulatory requirements. From drafting resolutions to navigating legal considerations such as tax planning and shareholder agreements, a lawyer can offer expert advice tailored to your business needs.

To explore how Beekma Law can assist you in incorporating your business in Ontario and provide ongoing legal support, we invite you to book a call with our team. Our experienced lawyers are here to help you establish the proper legal structure and entity for your business, providing peace of mind and strategic legal guidance every step of the way. Don’t hesitate to contact us for personalized assistance with your business incorporation needs.