When an advice firm sells, the headline price and the money that arrives on completion day are rarely the same number. Most deals in this market pay a portion up front and the rest over a period after completion, commonly stretching well beyond the first year. That later portion is deferred consideration, and it is where sellers lose money when things go wrong. The buyer who was charming through due diligence is, from completion onwards, simply a debtor. This article covers what deferred consideration is, how it differs from an earn-out, the structures you will see, and the protections worth negotiating before you sign.
Deferred payments and earn-outs are not the same thing
The two terms get used interchangeably, and the difference matters more than almost anything else in the payment schedule.
Deferred consideration, properly used, means a fixed sum payable at a fixed date. The buyer owes you £400,000 on the first anniversary of completion and £400,000 on the second, and those obligations exist regardless of how the business performs afterwards. It is a debt. The only question is whether the debtor can and will pay it.
An earn-out is contingent. The later payments flex with something measurable after completion: retained FUM, retained recurring income, client numbers still on the books at a review date. If the measure falls short, the payment falls with it, and that is not a default, it is the contract working as written. Earn-outs carry a whole set of their own hazards around measurement, control and dispute, which are covered separately in the questions to ask before you agree to an earn-out.
Plenty of deals blend the two: a fixed deferred element plus a contingent top-up. When a buyer describes the structure, pin down which pounds are fixed and which are contingent, because the protections you need are different for each. A fixed deferred payment needs security against the buyer failing to pay. A contingent payment needs, on top of that, protection against the buyer running the business in a way that shrinks the measure.
Typical structures in this market
A common shape for the sale of an advice firm, whether a share sale or the sale of a client bank, is a substantial payment on completion, with the balance in one or two further tranches over the following year or two. The later tranches are often adjusted for client and income retention even where they are described as deferred rather than earned out, so read the mechanics, not the labels. The route you have chosen shapes this too: an asset sale and a share sale put the deferred obligation in different hands and against different assets, which matters when you come to secure it.
Retention adjustments usually work from a baseline of recurring income or FUM measured at completion, with the deferred tranche scaled down if the retained figure at the review date sits below an agreed threshold. Some structures include a floor below which the tranche is not reduced further; some do not. Some include upside if retention beats the baseline; most do not. None of this is standard in the sense of being fixed; all of it is negotiated, and buyers who acquire regularly have template documents drafted in their own favour as a starting position.
The timing of the tranches also interacts with your tax position. Fixed and contingent amounts can be treated differently, and part of the bill can fall due before the matching cash has arrived, which is worth understanding before the structure is agreed rather than after. The detail sits in how earn-outs are taxed.
The starting question: can this buyer actually pay?
Every protection discussed below is secondary to a simpler test. Deferred consideration is an unsecured loan from you to the buyer unless you make it otherwise, so before negotiating the security package, form a view on the covenant you are lending to.
This is not paranoia, it is the regulator's own reading of the market. The FCA's multi-firm review of consolidation in the advice and wealth management sector, published on Fri 31st Oct 2025, raised specific concerns about debt-funded acquisitions and about regulated firms coming under pressure to upstream cash to service external debt held elsewhere in the group. Translate that into a seller's position: some of the acquisitive buyers in this market are themselves heavily borrowed, and the cash that pays your second tranche may be competing with the cash that services their lender. Their lender will usually hold security. Unless you negotiate it, you will not.
So before agreeing a deferred structure, do your own due diligence on the buyer. Read their filed accounts, and note how current they are and whether the auditor has said anything qualified. Ask directly how the acquisition is funded: cash reserves, an equity backer, or debt, and if debt, from whom and on what terms. Ask which entity in the group will actually owe you the money, because a covenant from a thinly capitalised acquisition vehicle is worth very little, however substantial the group above it looks. Ask what other deferred obligations they are already carrying to sellers who signed before you; a buyer part-way through a buy-and-build programme may owe several years of tranches across many past deals. None of these questions is rude. A buyer who bridles at them is telling you something useful.
The protections worth negotiating
With a view formed on the covenant, the security package is about making sure that if the buyer cannot or will not pay, you are not simply an unsecured creditor hoping for the best. The main tools, roughly in order of strength:
- A charge over assets. A fixed charge over the client bank or the shares you sold, or a debenture over the buying entity, puts you ahead of unsecured creditors on insolvency. The buyer's bank will usually already hold first-ranking security, so what is realistically on offer is often a second charge, which needs the senior lender's consent through a deed of priority. Second-ranking security is still considerably better than none.
- Escrow or retention accounts. Part of the deferred sum sits with an independent stakeholder, typically the lawyers or an escrow agent, and is released against the payment schedule. The money exists and is outside the buyer's day-to-day control. Buyers resist escrow precisely because it works, and it is most achievable on the shorter, smaller tranches.
- Personal guarantees. Where the buyer is an individual or a small firm, a personal guarantee from the principal turns a corporate promise into a personal one. From a larger group, the equivalent is a parent company guarantee from the entity with the actual balance sheet. Either way, the point is to move the obligation from a shell to a covenant of substance.
- Acceleration clauses. On a missed payment, an insolvency event, or a sale of the buying entity, the whole remaining balance falls due at once. Without acceleration, a defaulting buyer can string you out one late tranche at a time, and you are litigating each instalment separately.
- Interest and default interest. Modest interest on the deferred balance reflects the fact that you are financing the buyer, and a higher default rate on late payment gives the buyer a live reason to pay you on time rather than last.
You will rarely get all five. A realistic negotiation lands two or three, matched to where the covenant is weakest. Against a debt-funded consolidator, priority arrangements and a parent guarantee matter most. Against a local firm making its first acquisition, a personal guarantee and acceleration may be the whole package. Against any buyer, escrow on at least the first deferred tranche is worth pressing for, because the first tranche is where payment behaviour reveals itself.
Two further points sit alongside the security package. First, restrict what the buyer can do with the asset before you are paid: a well-drafted agreement stops the buyer selling on the client bank, granting new security over it, or moving it to another group company while deferred consideration is outstanding. The FCA's expectations of firms selling client banks treat the client bank as the firm's asset and expect sales to be conducted properly, and your contractual restrictions are the private-law counterpart of that: the asset that secures your payment should not be able to quietly move beyond your reach. Second, keep the deferred obligation clean of set-off as far as you can. Buyers like the right to withhold deferred payments against warranty claims; sellers should push for claims to be dealt with under the warranty machinery, with its thresholds and time limits, rather than netted unilaterally against money owed. Where the buyer insists on set-off, cap it and require a genuine, notified claim rather than a mere assertion.
Pricing the risk, not just the headline
The practical use of all this is not only to bolt protections onto a structure you have already accepted. It is to price offers properly in the first place. Two offers at the same headline number are not the same offer if one pays 80 per cent on completion from a cash-funded buyer and the other pays half up front from a debt-funded vehicle with the balance unsecured over several years. The second is a smaller offer wearing a bigger number, and the discount you should mentally apply grows with every protection the buyer refuses.
That mental discounting is also a negotiating tool. A buyer who will not give security, will not escrow, will not offer a guarantee and will not accept acceleration is asking you to carry their credit risk for free. The honest responses are a higher price, a larger completion payment, or a different buyer. Deferred consideration is normal in this market and often unavoidable; carrying it naked is neither.
Finally, remember that time is on nobody's side. A deferred schedule stretching past two years leaves you exposed to the buyer's fortunes through a full market cycle of their own, and sits alongside your other post-sale tails such as run-off cover and any retained involvement. Shorter and secured beats longer and larger more often than sellers expect. There is more on how payment structures fit within the wider mechanics of a deal across the how firms are sold pillar.
Before any of that, it helps to know what the whole firm is plausibly worth, so you can judge how much of the price is being deferred and whether the completion payment alone would leave you comfortable. If you want a number of your own to react to, the free IFA valuation calculator gives you a range and explains the factors affecting it.