Financial planning licensees that effectively impose exit penalties on departing practices are counter-productive to businesses seeking to retain good planners, according to Grahame Evans, managing director, GPS Wealth.
“They’re making it all but impossible for people to accept transfer agreements,” Evans says.
Payments linked to professional indemnity (PI) insurance run-off cover and requirements for positive client consent before transferring them to a planner moving to a new licensee are among some of the tactics being employed, he says.
Run-off cover is effectively a standard PI Insurance policy with an additional clause indicating that the policy will not respond to claims arising out of any new work undertaken. Cover is only provided for liabilities associated with services provided prior to deciding to purchase run-off.
Describing the process of transferring clients between licensees, Evans says positive consent requires every client to sign a form agreeing to move with their adviser to the new licensee. “Most of the industry uses negative consent, and to me, [positive consent] seems to be a worrying trend. They can’t keep advisers for the right reasons,” he says.
Speaking about PI insurance run off cover, Evans believes this is not a payment required by the insurer themselves, but is instead levied by some licensees.
“Some licensees require planners to pay a run-off cover premium when they leave,” he says.
“There is no requirement from any [PI insurer] that I’ve ever dealt with – and I have done a lot of negotiations for PI – that it be paid by the advisers, or paid as a separate premium to the insurers. As far as I’m aware, no insurer sits down and asks for separate runoff cover for every adviser or practice that leaves their license.”
Worrying trend
Another approach he believes could be a “worrying trend” involves some practice transfer agreements requiring a new AFS licensee to review every piece of advice provided over a three month period. At a rough estimate, assuming the review of around 200 Statements of Advice written over 60 working days, he suggests this could cost upwards of $100,000.
“These are attempts to stop advisers moving licensees…they are a form of exit penalty…[and] legal advice will probably suggest it’s unconscionable,” Evans says.
One non-aligned licensee representative Professional Planner spoke with confirmed it does not require practices to pay a separate run-off insurance premium before exiting.
“The Infocus group process –including Infocus and Patron – is an industry standard process. It includes the use of a standard client transfer form, with no additional PI runoff cost payable,” says Rod Bristow, managing director, Infocus Wealth Management.
“It’s just a very standard process – you have advisers come, and advisers go. There’s no benefit for any party in the industry to make it difficult or otherwise.”
