Letter of Intent Template for Acquiring a Registered Investment Advisor (RIA)

Parties and Recitals

Identifies the buyer entity, seller entity, and the individual selling advisor(s) by name. In RIA transactions, the individual advisor is often a material party even if the legal seller is the firm entity, because client relationships and regulatory registrations are tied to that person. Both the firm and the key individual should be named as parties or explicitly acknowledged.

💡 Sellers should confirm whether the buyer intends to acquire the legal entity (stock/membership interest purchase) or the assets of the practice. Entity purchases preserve existing client agreements and ADV history but inherit all liabilities. Asset purchases require re-papering client agreements, which introduces attrition risk. Most RIA aggregators prefer asset or book-of-business acquisitions to limit legacy liability exposure. Clarify this before the LOI is signed, as it affects every downstream provision.

Purchase Price and Structure

States the total proposed purchase price, the allocation between upfront consideration and contingent earnout, and how each component is calculated. RIA valuations typically express price as a multiple of recurring revenue or a percentage of AUM. This section must distinguish between the headline number and the amount the seller can realistically expect to receive.

💡 Sellers should push for the highest possible upfront cash component, ideally 50–70% of total purchase price, to reduce exposure to earnout risk. Buyers will argue for larger earnouts to protect against client attrition. The baseline AUM and revenue figures used to calculate the purchase price should be locked to a specific measurement date — typically 30–60 days prior to closing — so market movements do not inflate or deflate the starting point in ways neither party intended.

Earnout Provisions and AUM Retention Metrics

The most consequential section in any RIA LOI. Defines the earnout period, the specific metrics used to measure retention (AUM, revenue, or both), how shortfalls are calculated, the payment schedule, and whether the earnout has a floor or cap. This section protects the buyer against client attrition while preserving the seller's ability to earn the full purchase price through successful transition.

💡 The market-depreciation carve-out is critical for sellers. Without it, a 20% market decline that reduces AUM mechanically would penalize the seller for something entirely outside their control. Buyers may resist this provision or propose a blended methodology — sellers should hold firm. Also negotiate whether AUM from new client referrals sourced during the earnout period can offset attrition against the target baseline. This is often called an 'offset credit' and can meaningfully protect seller earnout in a strong referral environment.

Purchase Price Allocation and Revenue Quality Adjustment

Addresses how the agreed purchase price will be adjusted if due diligence reveals material differences from the representations made in the LOI — specifically around revenue quality, fee schedules, and client concentration. RIA buyers regularly discover commission or transactional revenue that was characterized as recurring advisory revenue, or client agreements with below-market fee rates that reduce true economic value.

💡 Sellers should proactively segment revenue before the LOI is signed. If you have commission trails, financial planning fees billed outside the AUM fee, or one-time project fees, categorize them accurately. Buyers who discover revenue mischaracterization during diligence will reduce the purchase price — and the goodwill lost in that negotiation often damages the broader deal. Transparency at the LOI stage is both ethically required and strategically smart.

Regulatory and Compliance Representations

Outlines seller's representations regarding regulatory standing, ADV accuracy, and compliance history. RIA acquisitions have a compliance layer that most other business acquisitions do not — the buyer is assuming regulatory responsibility for a licensed entity or must re-register, and any undisclosed compliance deficiencies discovered post-close can expose both parties to regulatory and legal risk.

💡 Buyers should request a copy of the most recent Form ADV and any examination correspondence as part of the initial due diligence package — before LOI execution if possible, or immediately after. Sellers who have historical deficiency findings should disclose them proactively with context and documentation of remediation. Undisclosed compliance issues discovered post-LOI are among the top reasons RIA deals fail to close.

Key Person Obligations and Transition Services Agreement

Defines the obligations of the selling advisor to remain engaged post-close to facilitate client introductions, transfer relationships, and support operational continuity. This section is the most sensitive in the entire LOI because it governs how long the seller must work after being paid, in what capacity, and under what supervision.

💡 Sellers should negotiate the transition period, time commitment percentage, and the definition of 'transition activities' carefully. A buyer's definition of transition services can expand to effectively make the seller a full-time employee at below-market compensation if not explicitly scoped. Sellers should also negotiate early termination rights if the buyer fails to meet certain integration milestones or changes the service model in ways that damage client relationships. Both parties should address what happens to earnout payments if the seller is terminated without cause during the transition period.

Exclusivity and No-Shop Period

Establishes the period during which the seller agrees not to solicit, entertain, or negotiate with other potential acquirers. Exclusivity protects the buyer's investment of time and diligence costs; sellers should limit its duration and retain the right to respond to unsolicited inbound inquiries in certain circumstances.

💡 Sixty days is a reasonable exclusivity window for an RIA transaction of this size. Sellers should resist exclusivity periods exceeding 90 days without a clear milestone schedule tied to buyer obligations. Some sellers negotiate a 'buyer deposit' or 'exclusivity fee' of $25,000–$50,000 payable to the seller if the buyer fails to close or abandons the process without cause — this aligns buyer incentives and compensates the seller for taking the firm off the market.

Due Diligence Scope and Access

Specifies what information and access the buyer will require during the due diligence period, how sensitive client data will be handled, and what confidentiality protections apply to the process. RIA due diligence is particularly sensitive because it involves client financial data, compliance records, and personal relationship information.

💡 Sellers should never transmit client PII — names, Social Security numbers, account numbers — via unsecured channels or before a robust NDA and data security protocol is in place. Many RIA buyers will request direct access to the custodian platform (Schwab, Fidelity, Pershing) to verify AUM independently. Sellers should facilitate this through a read-only data share or custodian-generated report rather than granting platform access directly.

Conditions to Closing

Lists the conditions that must be satisfied before either party is obligated to complete the transaction. RIA acquisitions have regulatory conditions that most other business acquisitions do not — specifically around custodian approval, ADV amendment filings, and client notification requirements.

💡 The client notification requirement is a significant operational step that sellers often underestimate. Under the Investment Advisers Act and most state regulations, clients must be notified of a material change in ownership and may have the right to terminate their advisory agreements. Both parties should agree on the timing, content, and process for client notifications — typically coordinated by the seller with buyer review — and include a post-notification period to measure initial attrition before the final AUM baseline is set for earnout purposes.

Non-Solicitation and Non-Compete

Restricts the selling advisor from soliciting former clients or establishing a competing advisory practice during and after the transition period. This is one of the most negotiated sections in any RIA deal because the seller's ability to return to the profession is a deeply personal concern.

💡 Non-compete enforceability varies significantly by state — California, for example, renders most non-competes unenforceable regardless of negotiated terms. Sellers in states with limited non-compete enforcement should ensure the LOI and definitive agreement reflect realistic restrictions. The geographic scope, duration, and client carve-outs (particularly the unsolicited contact exception) are all negotiable. A 2–3 year non-solicitation tied specifically to named clients is generally more enforceable and more commercially reasonable than a broad practice restriction.