On top of the already-cumbersome grandfathering issue, another “serious impediment” to the free movement of advisers has been discovered by Synchron director Don Trapnell.
Trapnell is currently trying to add five advisers to his licensee, but says that their Queensland-based licensee wants to impose a run-off PI cover charge, which effectively acts as an exit-fee.
Trapnell says the practice of charging advisers run-off cover premiums is disgraceful. “We obviously have PI cover and we do not receive a bill for run-off cover,” he says. “If licensees are not charged for it, how dare they demand it from their exiting advisers?”
This fee can be as much as $12,000 per adviser, so for the five advisers to join Synchron, there will be a cost of $60,000 – too much for a small practice.
Trapnell says that licensees are starting to impose what he calls Hotel California clauses – You can check out any time you want but you can never leave.
These clauses place onerous conditions and penalties on exiting advisers, which make it near impossible for them to leave. Some of the other conditions licensees are attempting to impose include a requirement for the adviser to review advice given to all clients within three to six months of termination.
“It is impossible to review a client without physically making contact,” Trapnell says. “What happens if the client doesn’t want a review, has moved overseas or simply changed address and not told their adviser? Many life advisers have in excess of 500 clients. It is physically impossible to review them all within a three to six month period.”
It also creates a PI insurance problem for the new licensee, because if an incoming adviser has signed the clause and is unable to honour it, they will not be covered by PI insurance, says Trapnell.
“How do you review the needs of clients without talking to them? If a client says no, then no PI is in place and if there is no PI in place a licensee has breached licensee conditions and risks losing its licence. These agreements also attempt to contract a person – the client – who is not party to the agreement.”