An Investment Advisor's book of business is considered family property capable of division (see the BC Court of Appeal decision of Lightle v. Kotar 2014 BCCA 469). Under part 5 of the Family Law Act, the value of an IA's book of business acquired during the course of a marriage or a marriage-like relationship should be equally divided between spouses.
An Investment Advisor's book of business is a marketable asset
Courts have found a book of business to be a marketable asset. Value is determined on the assumption that the IA is willing to cooperate in the notional sale in order to maximize value, and a notional vendor would propose normal commercial terms to preserve the good will associated with the book of business (Best v. Best, 1999 CanLII 700 (SCC)). It is advisable to retain the services of a chartered business valuator to conduct a professional valuation of the book of business.
Factors that chartered business valuators consider
Some of the factors a valuator may include in the valuation are:
- tenure of the Investment Advisor;
- number of clients;
- value of assets under management;
- ratio of fee-based to non-fee-based business; and
- client experience and returns.
The valuator will work with you or your spouse (or the respective lawyers) to request all of the relevant information and documentation to conduct the valuation.
Succession programs and valuation of a book of business
In circumstances where an Investment Advisor has a "succession program", courts have used the succession program as a method to determine the value of the book of business. A succession program develops a framework to transfer the management under assets and clients to another IA. There are a variety of succession programs offered by financial institutions. In some cases, lump sum payments are offered, a set years of employment income are payable upon retirement, or a mixture of both. When you or your spouse have the option of participating in a succession program, all parties should understand the various options available and discuss the program you or your spouse will elect upon retirement. If you are dealing with questions surrounding the valuation of business assets it is advisable to get the advice of financial professionals to assist in valuation of the asset and the advice of a family law lawyer to help you consider your options.