Investment advisory book due diligence

Diligence on an advisory book is largely about testing the assumptions the offer was built on, rather than hunting for one dramatic hidden document. Three assumptions carry almost all of the risk: that the revenue mix is really what the summary says it is, that clients will actually consent to move in the numbers the deal assumes, and that nothing sits quietly open in the dealer’s compliance file. A buyer who works through each methodically ends up in a very different position at closing than one who accepted the seller’s summary at face value, and this work is best done with a lawyer alongside you rather than reconstructed alone after something has already gone wrong.

Verifying the revenue mix, account by account

Request the account-level breakdown, not just the aggregate total, and verify how each account is classified as fee-based or commission rather than trusting a blended summary figure. Check how AUM has moved through a full market cycle, not only through a recent high point, since a book that never fully recovered from an earlier downturn tells a different story than one that has been resilient.

Testing consent realism before you rely on it

Do not take an assumed consent rate at face value. Ask for actual retention data from any past transition the book has already been through — a dealer change, a prior partial sale, an earlier advisor departure — since that history is far better evidence than an optimistic projection. Review whether investment policy statements are current for individual clients, since thin or stale documentation is itself a signal that the relationship may be less durable than represented.

The dealer’s own compliance file is the single most important document

Request confirmation of whether any suitability or compliance matter is currently open, or has recently closed, in the dealer’s own file review, and what remediation, if any, was required. A finding here does not automatically kill a deal, but it changes what a reasonable price and structure look like, and it is not something a buyer should learn about for the first time after closing.

Cross-checking representations against the dealer’s own records

Whatever the seller told you during negotiation about client retention, revenue mix or compliance status should be checked against what the dealer’s own records actually show, rather than accepted as accurate simply because it was stated confidently. A gap between what was represented and what the file shows is not always dishonest — sellers sometimes genuinely do not track this precisely — but it is a signal to slow down and verify everything else more carefully rather than a detail to wave past.

Involve your own dealer’s compliance contact early

Because the dealer ultimately has to approve any transfer, it is worth bringing your own compliance contact into the process well before you expect to close, rather than only once a deal is fully negotiated. Running your own approval process in parallel with the rest of diligence, instead of sequentially after it, surfaces registration or eligibility problems earlier, when there is still time to restructure the deal or walk away, rather than after both sides have already committed emotionally and financially to closing.

If the book sits inside a corporation, check that separately

Many advisors operate through a personal corporation, and if the deal is structured as a purchase of that corporation’s shares, standard corporate diligence applies on top of everything above — confirming corporate status and good standing, running an execution and judgment search, checking for outstanding CRA debts attached to the corporation, and, where the transaction is large enough to matter, confirming who is actually registered as controlling the corporation through the individuals-with-significant-control register. Skipping this step because the deal "feels" like a simple client-list purchase is a common mistake, since a share purchase carries the corporation’s full history, debts included, forward with it.

Sequencing your own diligence with the dealer’s timeline

The dealer’s approval process and your own independent diligence are not the same thing, and treating them as interchangeable is a common mistake. The dealer is protecting its own regulatory position and client relationships; you are protecting your investment. Run both in parallel where possible, share findings between the two processes where it is useful to do so, but do not assume the dealer’s sign-off means you can skip your own verification of the points above.

Staff and continuity checks round out the picture

Where support staff service part of the client relationship, ask whether any are subject to retention agreements meant to keep them through the transition, and whether client-service processes are actually documented rather than living only in the departing advisor’s memory. A book that depends entirely on one person’s undocumented judgment is a materially different asset from one supported by a team and a process, even at an identical AUM figure. If a support team is staying on, confirm their compensation and reporting arrangements are actually settled, rather than left as an assumption both sides plan to sort out later.