RIA M&A Glossary
What Is Negative Consent in an RIA M&A Transaction?
Direct Answer
Negative consent is a method of obtaining client consent to an assignment of an advisory contract in which the adviser notifies clients of the pending transaction and treats their continued acceptance of services, absent an objection by a stated deadline, as implied consent. SEC staff guidance permits negative consent in most RIA change-of-control transactions, though it is not available for all client types or contract structures. The notice period and disclosure content are typically negotiated between buyer and seller counsel as part of the transaction timeline.
How Negative Consent Works
The adviser sends clients a notice describing the pending change of control, the resulting assignment of their advisory contract, and the deadline for raising an objection. If a client does not object by that deadline, continued acceptance of services is treated as implied consent to the assignment. The mechanism lets a transaction close on schedule for the large majority of a client base without requiring each client to sign a new agreement, provided the notice content and timing meet the standard regulators have accepted.
When It Is and Is Not Available
Negative consent is available for most retail and institutional clients whose advisory agreements do not require affirmative approval of an assignment. It is generally not available for clients with a contractual affirmative-consent provision, government entities, and ERISA plan fiduciaries, all of which typically require a signed approval before the assignment can proceed. Deal counsel reviews the client base and the underlying advisory agreements early to identify which clients fall into each category before drafting the notice.
Notice Period and Disclosure Content
The notice period and what the disclosure covers, typically the nature of the transaction, any changes to fees or services, and the new adviser's identity, are negotiated between buyer and seller counsel rather than set by a fixed rule. Regulators have accepted notice periods in the range of 45 days as reasonable, though the specific window depends on the client base, the complexity of the change, and the closing timeline the parties are working against.
Where Negative Consent Fits in the Closing Timeline
The negative consent notice period is usually the pacing item for the entire transaction. Because the notice cannot go out until deal terms are largely settled, and closing typically cannot occur until the notice period has run its course, the consent process is planned as a critical-path item from the outset rather than sequenced after diligence and drafting are complete.
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Related Terms
Assignment (Investment Advisers Act)Frequently Asked Questions
How long is a typical negative consent notice period?
Notice periods commonly run 45 to 90 days. Regulators have accepted 45-day windows as reasonable, but the deal team sets the specific period based on the transaction schedule, client base, and the complexity of the disclosure being sent.
Can negative consent be used for every client in a transaction?
No. Clients with contractual affirmative-consent provisions, government entities, and ERISA plan fiduciaries generally fall outside negative consent and require an affirmative approval instead. Deal counsel typically segments the client base early to identify which clients need the different process.