RIA Acquisition Due Diligence Checklist

Pre-close diligence workflow run by an acquiring RIA's deal team and CCO when evaluating a target advisory firm. Covers corporate, financial, regulatory, and operational review with a final sign-off gate before purchase agreement.

Use this workflow
1

Corporate & Governance Review

  1. Pull current Form ADV Part 1 and 2A

    • Download the target's most recent ADV filings from IAPD and compare against the firm's internal copies. Watch for material amendments filed in the last 12 months — disciplinary disclosures, custody changes, or new fee schedules — that signal items needing follow-up.

  2. Verify SEC and state registration status

    • Confirm registration aligns with AUM thresholds — federal registration at $100M+, state registration below. Targets straddling the line often have notice-filing gaps in states where they hold clients but never registered.

  3. Map ownership structure and cap table

    • Identify all 25%+ beneficial owners for CTA reporting purposes and reconcile against the ADV Part 1 Schedule A/B disclosures. Document any side letters, profit interests, or phantom equity that won't appear on the formal cap table.

  4. Review board minutes and key resolutions

    • Pull the last three years of board or member minutes. Look for unresolved compliance escalations, related-party transactions, and any committee findings that didn't make it into the ADV.

  5. Document key-person dependencies

    • Identify advisors whose departure would put more than 10% of AUM at flight risk. Note non-compete and non-solicit terms in their employment agreements — many state courts will not enforce these against departing advisors absent narrow tailoring.

2

Financial & Revenue Analysis

  1. Analyze AUM trends and client concentration

    • Pull AUM by household for 36 months and flag the top 10. Concentration above 25% in the top 10 households is a deal-pricing issue — single-household departure can swing valuation materially.

  2. Review revenue mix by fee type

    • Break out AUM fees, planning fees, commission/12b-1 trail, insurance overrides, and any solicitor referral revenue. Hybrid RIA/BD revenue carries different post-close run-rate risk than pure fee-only AUM.

  3. Examine three years of financial statements

    • Request reviewed or audited statements where available; tax-basis P&Ls otherwise. Reconcile reported revenue to custodian fee debits and tie advisor compensation to the cap table.

    Collects file
  4. Reconcile fee billing against custodian records

    • Pull a sample of 25 households across Schwab, Fidelity, or Pershing and recompute the most recent quarterly fee from contracted rate × billing-period balance. Variance over 2% on any sample household warrants a full audit of the billing engine.

  5. Evaluate accounts receivable aging

    • Most RIA fees are auto-debited and AR is minimal. Anything over 60 days for planning fees or held-away fee invoicing usually points to an admin process gap the buyer will inherit.

3

Regulatory & Compliance Review

  1. Pull recent SEC or state exam letters

    • Request the most recent deficiency letter, the firm's response, and evidence of remediation. Open or partially-remediated findings travel with the firm post-close — buyer inherits the exam history.

    Collects list
  2. Review AML CIP program and OFAC logs

    • Confirm CIP is documented per account type, beneficial-owner collection at 25%+ for entity accounts, and ongoing OFAC screening with hits log. PEP / EDD documentation should exist for any flagged client.

  3. Verify advisor U4 disclosures on IAPD

    • Run BrokerCheck and IAPD on every IAR. Customer complaints, regulatory actions, and termination disclosures sometimes appear on the rep's record but never made it to firm-level ADV Item 11.

  4. Audit code of ethics and personal trading log

    • Sample quarterly access-person reports against custodial trade confirms. Pre-clearance gaps and undisclosed outside business activities are the most common findings in this area.

  5. Examine custody rule SLOA controls

    • If the firm relies on the SEC's no-action SLOA exception, verify all seven safeguard conditions are documented per client. A single missed condition tips the firm into custody and triggers a surprise exam requirement the buyer will inherit.

  6. Deep-dive remediation status on open findings

    • For each unresolved finding, document the corrective action plan, owner, and expected closure date. Negotiate either a closing condition (remediate before close) or a purchase-price adjustment with escrow.

4

Operations & Technology Review

  1. Inventory custodian and PMS platforms

    • Catalog every custodian (Schwab, Fidelity, Altruist, Pershing) and the PMS in use (Black Diamond, Orion, Tamarac, Addepar). A multi-custodian target with a single-custodian buyer means a repapering project of every household post-close.

  2. Audit email archiving and off-channel comms

    • Confirm Smarsh, Global Relay, or Microsoft Purview is capturing all advisor email. Ask directly about texting — if the firm uses iMessage or WhatsApp without MyRepChat or Hearsay Relate, you are inheriting the same off-channel exposure that drove $2B+ in 2022-2024 enforcement.

  3. Assess Reg S-P cybersecurity controls

    • Review the written information security program, identity theft red flags program, and last penetration test. Confirm MFA on custodian portals, CRM, and email — single-factor advisor logins are the most common wire-fraud vector.

  4. Review Form CRS and client agreement templates

    • Pull the IAA, Form CRS, and Reg BI disclosures. Check that CRS delivery is logged in the CRM at recommendation time — non-delivery has been a recurring exam focus since the 2020 effective date.

  5. Collect vendor SOC 2 reports and BCP

    • Request SOC 2 Type II reports for the PMS, CRM, archiving vendor, and any cloud doc store. Read the BCP — RIAs without a tested BCP and named successor advisor are common citation targets.

5

Findings & Sign-Off

  1. Compile the material findings memo

    • Distill findings into deal-impacting, remediation-required, and informational categories. Each deal-impacting finding should have a recommended price adjustment, escrow holdback, or closing condition.

    Collects file
  2. Final due diligence sign-off

    • Acquiring CCO and deal lead jointly sign off. Approval with conditions means the conditions become closing requirements in the purchase agreement; rejection ends the deal.

    Collects list Collects paragraph Collects signature
  3. Schedule remediation follow-up call

    • For approval-with-conditions outcomes, schedule a working session with the target's CCO and deal counsel to translate each condition into a closing covenant with named owner and deadline.