The Australian financial advice industry is in the midst of a major shift. Whether it’s a seasoned adviser preparing for retirement, or a growth-focused firm seeking scale and synergy, M&A activity in advice has never been more active.
In fact, recent industry data shows a marked uptick in transactions.
M&A Activity in the Australian Financial Services Sector
- Q1 2024: The merger between Count and Diverger, finalized on March 1, created a combined entity managing $29.9 billion in funds and generating over $129 million in revenue. moneymanagement.com.au
- 2024: Gadens advised on over 50 M&A deals totaling more than AUD 2.6 billion, a significant increase from 43 deals worth AUD 1.2 billion in 2023. lexology.com
- December 2024: Bain Capital made a non-binding all-cash takeover proposal for Insignia Financial, valuing it at A$2.67 billion. reuters.com
- August 2024: Oaktree Capital Management invested $240 million in AZ NGA, acquiring a major stake and becoming its largest shareholder. theaustralian.com.au
The consolidation trend is real, at all levels of the advice ecosystem—and it’s only accelerating.
But amid the excitement of new beginnings, there’s a less glamorous, often misunderstood aspect of M&A that every buyer and seller must grapple with: managing legacy risk.
Whether you’re buying or selling, here are three key considerations that can make—or break—your transaction.
1. Run-Off Insurance: The Silent Deal-Breaker
You’ve just agreed on valuation, settled the terms, and you’re preparing for a seamless handover—only to hit a wall when it comes to professional indemnity (PI) cover.
Enter run-off insurance.
Simply put, run-off is cover that covers prior liability—even years after the advice was given. Under the Corporations Act, licensees remain responsible for the actions of their authorised representatives (ARs and CARs), including for both criminal and civil liabilities. That responsibility doesn’t vanish when a business changes hands.
For Sellers:
Buyers will often insist on a run-off policy lasting at least 5–7 years. However, many PI insurers don’t actually offer multi-year run-off cover—something that surprises far too many sellers after they’re already deep into negotiations.
What to do:
- Ask your broker or insurer now: Does your current PI policy include an 84-month run-off clause?
- If not, start exploring other policy options early. Lack of appropriate cover can quickly derail a deal—or severely reduce its value.
For Buyers:
A solid run-off arrangement is your best defense against past issues resurfacing after you take over the business.
Think of it as a firewall: It allows you to focus on integration, clients, and future growth—without being distracted (or financially drained) by the burden of complaints tied to legacy advice.
Top Tip: Ask the seller about their PI policy early in the process. Don’t wait until due diligence is complete.
2. Warranties and Indemnities: Don’t Sign Blind
Every M&A contract includes representations, warranties, and indemnities. These might cover everything from employee entitlements and unpaid super to tax liabilities and ownership of IP.
These clauses are where buyer-seller goodwill is tested—and sometimes fractured.
If there’s a dispute post-settlement (think misstated revenue or unenforceable contracts), the fallout can be expensive and time-consuming.
That’s where Warranty and Indemnity (W&I) insurance can play a key role. It’s designed to cover losses that arise when contractual representations are breached. This cover can extend for up to five years post-transaction, providing valuable protection and peace of mind.
Commonly covered risks include:
- Inaccuracies in financial accounts
- Undisclosed tax liabilities
- Employee entitlements or breaches of workplace laws
- Intellectual property ownership disputes
- Contracts that turn out to be unenforceable
Even if you’ve recently completed a transaction, it’s not too late – some W&I policies can be taken out after the deal is done to protect against known or emerging issues.
3. Plan Ahead to Protect the Upside
Every M&A transaction is an opportunity: a chance to expand your footprint, realise the value you’ve built over decades, or combine forces with another adviser to better serve your clients.
But with that opportunity comes risk – and without adequate foresight, the cost of managing legacy issues, regulatory obligations, and contractual disputes can easily erode the upside.
Whether you’re a buyer or a seller, now is the time to:
- Review your insurance arrangements
- Clarify risk responsibilities
- Consider whether W&I cover is appropriate
- Work with experienced legal and M&A advisers
Final Thought:
In M&A, optimism should never replace preparation. Nail the technical details – like run-off and indemnities – and you’ll be free to focus on the real prize: building the next chapter of your advice business with confidence.
Call Numerisk on 1300 001 283 or email at enquiry@numerisk.com.au