The Regulatory Considerations for M&As and Transition Planning 

Mergers and acquisitions are becoming increasingly commonplace as a result of strategic transition planning. Each of these scenarios has a series of regulatory compliance considerations the business must face, whether on the breakaway path or on the merger and acquisition side.

There are many facets to merging, acquiring or owning and operating an independent business other than merely developing new corporate governance documents and registering, as needed, with the appropriate regulatory body.  From unveiling new product and service offerings to research, trading platforms, fee assessments and invoicing clients, there’s a need to determine how to best structure the business. Building a strategic plan helps to chart this vision and plan for how things will be done, which will eventually be disclosed on Forms ADV.

Once a strategic plan is developed, it is important to engage experienced counsel to discuss the regulatory considerations for the proposed business model.

Legal counsel serves as a mentor to clients through the transition process. Counsel is involved in the preparation, development, and execution phases for each step, and serves as a strategic advisor for addressing certain challenges during the transition.


A Focus on Risk Management

Here are some of the most common areas counsel can assist with during the transition process:

  • Adopting and implementing written compliance policies and procedures. The SEC requires advisors to adopt, implement, and maintain written policies and procedures that are customized and reasonably designed to prevent, detect, and correct violations of the Investment Advisers Act of 1940. At a minimum, the SEC expects your policies and procedures to address how the business has changed and the compliance protections developed to address areas of risk.Particularly during a transition, issues related to client disclosures, custody, cybersecurity and business continuity, confidentiality and privacy protection, advisory fee billing and marketing emerge. Regulatory counsel may help to mitigate these risks.
  • Employment contract provisions. Counsel looks for very specific language relating to non-competition, non-solicitation and trade secrets, with detailed provisions relating to final payouts and transference of client accounts and records to an outside entity. Background and compliance checks are made on all new hires.
  • Filings and resolutions for formation of the entity. This includes registration as an LLC, S-Corp, Partnership etc. Forms ADV must be filed to apply for registration with the state(s) or SEC. Forms U4 and Form ADV Part 2B are filed, as required, for those professionals who will provide advisory services. FINRA requires advisors to complete Form U4 and pass qualification exams to demonstrate competence in the securities business.
  • The drafting and development of documents and agreements. While every transition is unique to its circumstances, generally, most transition documents include NDAs and other confidentiality agreements; employee or independent contractor agreements; purchase agreements or onboarding manuals and documents, privacy notices, and marketing collateral.
  • Identifying and engaging key vendors to support the business. This includes custodial arrangements, electronic record maintenance, E&O insurance carriers, information technology (IT) needs, and cybersecurity.
  • Operational and compliance risk management. An evaluation should be made of the internal controls needed to supervise and oversee new products and service areas, including working remotely. A thorough review can determine if existing or new conflicts of interest need to be mitigated or eliminated.

Concluding Thoughts

Complex regulatory requirements are involved when transitioning to a new business model due to breaking away or merging and acquiring a new team. The attorneys at Jacko Law Group, PC, have a wealth of experience in mergers and acquisitions, investment advisory and broker-dealer firm formation, hedge and private fund development, transition risks, and investment counsel on regulatory compliance and securities law.

For more information, contact us at to schedule a consultation.


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