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Agreement disputes part of evolution: IFA

Problems with ownership of a client base when an advisory business is sold should become fewer as the profession evolves, it has been claimed.

Wednesday, December 23rd 2015, 6:00AM 5 Comments

by Susan Edmunds

Saturn Portfolio Group is taking a former Van Eyk adviser to court. Saturn took over Van Eyk Advice late last year.

Saturn chairman Craig Stobo said, in the course of moving clients over to Saturn, it had become apparent that clear enforcement of contractual property rights was needed in relation to ownership of client revenues.

Last year, Spicers’ restraint of trade clause in its contracts with advisers was called draconian by a High Court judge, after an adviser who moved to Forsyth Barr was taken to court when five of his former clients asked to follow him to his new role.

Stobo said it was an issue for the industry.

“Discussion with industry leaders highlighted that this issue has not been confined to the experience of Saturn Portfolio. That is unacceptable.”

He said the industry needed to shed “patched cottage practices born of the last century and move to the professional self-regulated business disciplines of the future. If we don't embrace professional standards amongst ourselves voluntarily we don't deserve a sustainable reputation from clients for excellence and we deserve regulation imposed from on high."

Institute of Financial Advisers chief executive Michael Dowling said advisers did not always understand the agreements they were operating under.

“I’m part of an agency agreement and it’s quite clear but I’ve been surprised at the number of my colleagues who don’t understand how the agreement works.”

He said better understanding was part of the evolution of the financial advice sector.  “Advisers are starting to understand what the agreements are and how they can deliver to consumers’ needs within those agreements.”

He said in some cases advisers who stepped over the line were doing so in an attempt to serve their clients as best they could.

"It’s partly why the legislation is written as ‘putting clients’ interests first’ not ‘best interests’ because sometimes the best is not possible because of commercial arrangements.”

Dowling said he hoped legislative change would make it easier for clients and financial advisers to understand how the line of service worked when a business was bought. 

He said many of the agreements put in place predated the Financial Advisers Act and Financial Markets Conduct Act.

Tags: financial advisers Saturn Van Eyk

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Comments from our readers

On 23 December 2015 at 9:23 am John Berry said:
interesting insight from Mr Dowling -

"It’s partly why the legislation is written as ‘putting clients’ interests first’ not ‘best interests’ because sometimes the best is not possible because of commercial arrangements.”

Clients would be surprised (horrified?) to learn their adviser is required to put client interests "first" BUT doesn't have to act in the client's "best" interests... Do you know how bad that sounds?
On 23 December 2015 at 1:31 pm w k said:
I think restraint of trade applies to two main group:
1) Business owners who decide to sell their business. If you are selling your business why would you want your clients back? It could be via another vehicle, it doesn't matter. Unless there is something dodgy going on, period.
2) Employees who decide to work with another employer. Employees in this instance are paid to procure business for their company including providing training for them, hence, it is fair to say that the clients belongs to the company NOT the employees. Why then would employees be allow to take the clients with them when they leave the company?
This is not an issue of clients' interest or not, it's a commercial issue. A business is set up to make profits NOT to buy over a business & allow their clients to go elsewhere or pay & train someone for zero return.
My humble & honest opinion after reading all the postings (this and past) - many, if not most, "experts" and people sitting at the top, regulators, policy makers, judges, etc are most likely to FAIL if they were to make any business decisions.
Just my thoughts.
On 23 December 2015 at 4:50 pm w k said:
Further to my comment. For example, a lawyer or accountant was to leave a firm to set up his/her own practice, will he/she be allow bring over clients who wanted his/her service? is this ok because this is putting the clients' interests first? Anyone in the legal or accounting profession like to enlighten?
On 23 December 2015 at 8:11 pm Pragmatic said:
At what stage were the clients asked who they'd prefer to conduct their business with? Sometimes looking through the client's lens confirms that greed is often placed before all else.
On 24 December 2015 at 4:53 am henry Filth said:
The clients own their data, so the decision is up to them.

Not a bunch of greedy junk-mail merchants.

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