When you sell an advice firm, most of the sale agreement is not about the price. It is about risk: who carries it, for how long, and up to what amount. Warranties and indemnities are the two mechanisms that do that work, and they are where the second half of the negotiation actually happens, long after the headline number is agreed.
This article walks through both in plain English: what each one does, how disclosure letters, caps, baskets and time limits shape your real exposure, which warranties advice-firm buyers care most about, and where you have genuine room to negotiate. It sits alongside the wider question of what happens to your liability for advice you have already given, which the deal structure itself largely decides.
What a warranty is
A warranty is a statement of fact about your firm, made by you in the sale agreement. "The company has no outstanding complaints." "All client files are complete and accurate in all material respects." "The accounts give a true and fair view." There will typically be dozens of them, sometimes running to a schedule of twenty or thirty pages, covering the accounts, tax, contracts, employees, regulatory standing, litigation, data protection and the advice itself.
If a warranty turns out to be untrue and the buyer suffers loss as a result, the buyer can bring a damages claim against you. The measure is broadly the difference between what the firm was worth as warranted and what it was actually worth. Importantly, the buyer has to prove that loss: a breached warranty with no financial consequence does not, in itself, produce a cheque.
Warranties do a second job that matters just as much as the claim mechanism. They force disclosure. Faced with warranting that there are no undisclosed complaints, a seller checks the complaints log properly and tells the buyer what is in it. A well-drafted warranty schedule is as much an information-extraction device as a remedy.
What an indemnity is
An indemnity is different in kind. It is not a statement of fact; it is a promise to pay. The seller agrees to cover the buyer, pound for pound, for loss arising from a specific named risk, whether or not anyone was misled about it.
The distinction matters in practice. Under a warranty claim the buyer must show breach, prove loss, and demonstrate it acted reasonably to keep that loss down. Under an indemnity the buyer usually just presents the cost. No argument about what was disclosed, no debate about the value of the firm, often no duty to mitigate in the same way. That is why buyers ask for indemnities against risks they have already identified, and why sellers should treat every requested indemnity as a serious concession rather than boilerplate.
In advice firm deals, indemnities cluster around known regulatory exposure: an open complaint, an identified cohort of defined benefit transfer cases, a past business review, a tax position the buyer's accountants did not like. Where the buyer has found the problem in due diligence, they will not rely on a warranty you have already disclosed against. They will ask you to indemnify it.
The disclosure letter: your main shield
Warranties and disclosure work as a pair. Alongside the sale agreement you deliver a disclosure letter, which lists everything that would otherwise make a warranty untrue. A matter fairly disclosed is generally excluded from warranty claims: the buyer knew, priced it or accepted it, and cannot later sue you for it.
This makes the disclosure letter the single most valuable protective document a seller signs. The instinct to keep it short, on the theory that admitting less looks better, is exactly backwards. Everything honestly and specifically disclosed moves off your risk. Everything you fail to disclose stays on it. Sellers who have run a proper file review before going to market, the discipline covered in what buyers ask for, in the order they ask for it, find disclosure straightforward; sellers who have not tend to discover their own problems at the worst possible moment.
Note the limit of the shield: disclosure protects against warranty claims, not indemnity claims. An indemnity pays out on the named risk regardless of what was disclosed. That asymmetry is the whole point of an indemnity from the buyer's side.
Caps, baskets and time limits
Unlimited liability is not the market norm, and no seller should accept it. Three standard mechanisms shape the real exposure.
The cap sets the maximum you can be made to pay in total. For general commercial warranties this is commonly negotiated as a percentage of the price actually received; fundamental warranties, such as your title to the shares, usually carry a higher cap, often the full consideration. Where part of your price is an earn-out or deferred consideration, watch how the cap interacts with it: buyers sometimes seek the right to set warranty claims off against deferred payments, which turns a claim they would otherwise have to prove in court into a deduction they simply make. If set-off is conceded at all, it should be limited to claims that are agreed or determined, not merely asserted.
The basket stops small claims. A de minimis threshold excludes individually trivial claims, and an aggregate basket means the buyer cannot claim at all until total claims pass a set figure. Whether the buyer then recovers the whole amount or only the excess over the threshold is itself a negotiating point, and one many sellers do not realise is open.
Time limits close the window. Commercial warranty claims have to be notified within a fixed period after completion, negotiated deal by deal and usually short relative to the life of the risks it covers; tax warranties and tax covenants typically run longer, often to the end of the relevant assessment periods. In an advice firm sale, the awkward truth is that advice liabilities can surface well beyond any commercially negotiable warranty period, which is one reason the structure of the deal, and the question of run-off cover, matter more than any single clause.
The warranties advice-firm buyers actually care about
Every share purchase agreement carries a standard commercial set: accounts, tax, employment, property, litigation. In an advice business, four areas get the forensic attention.
- Advice files. Warranties that files are complete, that advice was suitable and compliant with the rules in force at the time, and that file records support the recommendations made. These are the warranties most likely to be qualified, negotiated and disclosed against, because no honest seller can promise perfection across decades of advice.
- Complaints. That the complaints log is complete and accurate, that there are no complaints or circumstances likely to give rise to complaints beyond those disclosed, and that past complaints were handled in line with the rules.
- Defined benefit transfers. Usually carved out for special treatment: specific warranties on the number of cases, the process followed and the permissions held, and very often a specific indemnity or retention on top. DB transfer exposure is the single item most likely to convert a warranty conversation into an indemnity conversation.
- Data. That client data has been processed lawfully, that consents support the intended use, and that there have been no notifiable breaches. In a client bank purchase the data is a large part of what is being bought, so a defect here goes to the value of the asset itself.
Regulatory standing sits underneath all of these: that permissions are held and unconditional, that there is no current or threatened FCA action, and that regulatory notifications have been made where required. The FCA's statement of expectations on firms selling client banks, first published in December 2023 and updated in January 2025, is explicit that it will act where client banks are sold with redress liabilities left behind, and that a sale affecting a firm's risk profile or resources needs a SUP 15 notification. Buyers read that page too, and it is a large part of why the liability provisions in advice firm agreements have hardened. The FCA's multi-firm review of consolidation, published on Fri 31st Oct 2025, pushed in the same direction by putting acquirers' governance and risk management under scrutiny: a buyer whose own regulator expects comprehensive risk management passes that expectation straight through to your warranty schedule.
How structure changes the picture
Everything above applies in full force to a share sale, where the buyer acquires the company with its entire history inside it. In an asset sale the buyer picks up the client bank and agreed assets while the company, and its historic advice liability, stays with you; the warranty schedule is correspondingly shorter and the indemnities fewer, because the buyer is not inheriting the past. That is one of the central trade-offs explored in asset sale or share sale: the choice that changes everything, and it is worth being clear-eyed about it: a lighter warranty package in an asset sale is not the buyer being generous, it is the liability staying where it already was, with your company.
What is genuinely negotiable
More than most first-time sellers assume. The existence of a warranty schedule is not negotiable; almost everything about its edges is. In rough order of value to a seller:
- Knowledge and materiality qualifiers. "So far as the seller is aware" and "in all material respects" convert absolute promises into honest ones. Buyers resist them on the warranties they care most about; sellers should push hardest on the advice-file warranties, where absolute statements are unrealistic.
- The cap, the basket and the time limits. All three are pure negotiation, settled by market practice and bargaining position rather than principle. A well-prepared firm with clean files and competing bidders gets materially better numbers here than one buyer's opening draft would suggest.
- The scope of any indemnities. Resist general indemnities for broad categories of risk; accept, if you must, specific indemnities for specifically identified matters, ideally with their own caps and expiry dates.
- Set-off against deferred payments. As above: unrestricted set-off hands the buyer a self-help remedy. Confine it to agreed or adjudicated claims.
- Conduct of claims. Who controls the defence of a complaint or FOS referral that might become a warranty or indemnity claim. A seller still paying for the outcome should have rights of consultation at minimum, and ideally conduct.
Warranty and indemnity insurance exists as a further tool, more common on larger deals: a policy that sits behind the warranties so claims are met by an insurer rather than out of your proceeds. On smaller advice firm transactions the premium and minimum retention often make it uneconomic, but it is worth pricing before accepting a long tail of personal exposure on a substantial deal.
Keeping it in proportion
It is easy to read a thirty-page warranty schedule and conclude the buyer is trying to claw the price back by stealth. Usually they are not. Warranties are how a buyer who cannot verify everything buys with confidence, and a seller who has run the firm properly, kept the files in order and disclosed honestly rarely faces a claim. The sellers who do face claims are, overwhelmingly, the ones who knew about a problem and hoped it would not surface, which is precisely the behaviour the regime is designed to price.
The practical preparation is the same work that raises your price in the first place: complete files, a reconciled complaints log, a clear record of DB transfer cases, clean data. Get that in order before the buyer's lawyers arrive and the warranty negotiation becomes what it should be, a manageable allocation of residual risk rather than a fight about known defects. There is more on the liability side of that preparation across the liability and run-off hub.
None of this should decide whether you sell; it should shape how you prepare and what you agree to sign. If you are still at the earlier stage of working out what the firm might fetch, the free IFA valuation calculator will give you a range to react to and explain the factors affecting it.