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How to sell the personal goodwill of advisory practices

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2 years ago

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While all buyers look for a degree of figurative goodwill from advisory practice sellers, some financial advisors could reap tax savings by offering up that literal type of asset in the deal. 

The personal goodwill assets of advisors seeking a succession transaction before retirement or making a breakaway move to a registered investment advisory firm aggregator from the wirehouses generates a long-term capital gain that is taxed at a rate up to 17 percentage points lower than ordinary income at the top bracket, two experts told Financial Planning. The possible tax strategy comes with caveats. But more prospective buyers and sellers are inquiring about the potential benefits, according to Corey Kupfer, who advises RIAs and other wealth management firms on M&A and succession as the founder of law firm Kupfer.

Sales of personal goodwill may help solve a problem that pops up for the founders of practices with one or more younger advisors who have built a base of clients without amassing any equity. Such sales may also eliminate the need for a traditional “12 months and a day” waiting period to complete a deal in order to ensure sellers get the long-term rate, Kupfer said.

“There’s some friction because you’re saying to an advisor that you have to wait over a year,” he said in an interview. “My sense is that it’s really only within the last two or three years that this has taken off, and the reason is that there’s a lot of competition for deals out there.”

READ MORE: 25 tax tips for RIA M&A deals and other small business sales

Sellers should consult a tax expert early and often to consider every possible rule or implication from this form of asset transaction, according to Kupfer and Thomas Phelan, a partner with the Troutman Pepper Hamilton Sanders law firm who advises clients on M&A, reorganizations and cross-border deals.

Goodwill represents the difference between the total purchase price for a company in a deal and the market value of the firm’s assets minus liabilities. Within that umbrella, personal goodwill adds up to an especially important part of the purchase-price allocation for advisory practices that are “closely held corporations” with their value “very much targeted on the personal relationships of Jim Smith and his technical expertise,” Phelan noted in an interview.

In a personal transaction that distinguishes those assets from the goodwill of the corporation, the buyer “ends up in the same position” with “a deal that allows them to get a step up and a depreciable asset,” he said. The sellers, however, steer clear of paying taxes at both the corporate and individual levels in the personal goodwill transaction.

“If they’re operating out of a C-corporation, then I think the personal goodwill transaction seems potentially more appealing,” Phelan said. “The seller benefit is they get the capital gain and they don’t have to pay double tax. … You can strip a lot of value potentially out of the corporation, thus avoiding the double tax.”

The transactions require careful planning for a process that won’t be a fit for every possible seller out there, according to a guide compiled two years ago by attorneys Robert Greising and Travis Lovett of the Krieg DeVault law firm.

“A personal goodwill allocation approach should be raised early in the negotiation process,” they wrote. “This will safeguard against a challenge that allocation of personal goodwill was an afterthought, with the value negotiated by the parties assuming the goodwill was part of the business. The seller should obtain a third-party appraisal to establish the existence and the value of the personal goodwill. A separate agreement or, at a minimum, separate provisions of a purchase agreement should be used to evidence the sale of the personal goodwill separately from the corporate goodwill of the business. Could a personal goodwill allocation be right for your sale? Ultimately, answering this fact-sensitive question will benefit from the help of experienced professionals.”

READ MORE: Business entities affect taxes and M&A — how RIAs weigh the choice

Kupfer has worked on the buy or sell side of eight to 10 personal goodwill transactions over the past couple of years — an amount that is “not the majority, certainly” but a decent number considering that “people are still learning about it,” he said. Buyers interested in drawing wirehouse teams into the RIA channel in particular are reaching out to Kupfer to discuss them, with “one or two that haven’t been able to get comfortable,” others that are vetting the idea and “some of them I know are planning on using it,” he said.      

In addition, he advised on one sale of an independent advisory practice with the personal goodwill structure on behalf of the sole owner of a firm who managed roughly 70% of the client base. Two other advisors respectively served another 10% and 20% of the customers, but they didn’t own any of the firm’s equity. 

That dynamic created a “potential problem” from the fact that the firm would turn less valuable if those advisors left before the succession deal, or if the owner decided to share some of the deal proceeds with them in the form of ordinary income, Kupfer noted. So the owner sold 70% of the firm’s equity, then negotiated a personal goodwill transaction with the same buyer for the other 30% on behalf of the two other advisors.

“The only reason you need this is, when somebody doesn’t have an asset to sell because they don’t own the client list,” Kupfer said. “We were able to get them capital gains treatment, so, in the independent space, that’s the applicable scenario for personal goodwill.” 

Breakaway advisors’ success over the past decade in carrying over 85% to 90% of their client bases in many cases when leaving wirehouses — despite their former firms’ nonsolicit agreements and frequent legal wrangling around those moves — has bolstered the appeal of personal goodwill deals. Comparable M&A transactions among captive insurance agents are fueling the stronger momentum for them as well, Kupfer noted.

In the “worst-case scenario,” the seller could wind up with an IRS finding that the deal proceeds were ordinary income and the buyer may wind up with “a failure to withhold claim” based on that compensation, he said. Still, he hasn’t seen the agency challenge any of the deals.

“If we had 10 or 20 years of history we could be more comfortable,” he said. “In the insurance space especially and in other spaces you do have that history of it being successful.”

READ MORE: More RIA buyers are offering equity. Here’s what sellers should know

Such nuances with personal goodwill deals point to the necessity of engaging with experts well in advance about topics like the terms of prior employment contracts, the structure of a deal and the resulting taxes, according to Phelan. He has “often seen it come up” when the owners of a closely held corporation find out about their future bills to Uncle Sam under a deal after signing the letter of intent with a buyer, he said. 

“You want to talk to someone on the tax front early — ideally in the LOI process when it’s initially being negotiated,” Phelan said. “There’s an LOI, they’re buying the business and then they realize, ‘Oh shoot, we’re going to get hit with a double tax on this.'”

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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1 hour ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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6 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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