Planners: beware of licensee requirements

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New advisers are being forced to sign agreements that are essentially unworkable, when wanting to leave their current licensee, according to Synchron director Don Trapnell. These include conditions and financial penalties on exiting advisers and their new licensees.

Trapnell said institutional licensees were the most heavy-handed, with some requiring the adviser to review all advice given to clients within three to six months of termination.

“It is impossible to review a client without physically making contact.  What happens if the client doesn’t want a review, has moved overseas or simply changed address and not told their adviser?” he said. “Many life advisers have in excess of 500 clients. It is physically impossible to review them all within a three- to six-month period.”

Trapnell has dubbed the review requirement ‘The Hotel California Clause’ and said it also created a professional indemnity (PI) insurance problem for the new licensee. “If an incoming adviser has signed this clause and is unable to honour it, they will not be covered by PI insurance,” he said.

“One adviser who left her licensee was presented with a $50,000 ‘compensation’ bill which the licensee said must be paid in order to ‘release’ her clients,” he said. “This was grossly unfair as the adviser had an established business that was transferred into the licensee and the licensee had provided little in the way of services and support over her period of tenure with them. The compensation requirement was vaguely embodied in her Adviser Agreement.”

Trapnell said trying to force advisers to stay was shortsighted and that institutional licensees needed to realise advisers would only stay with them while they felt free to leave. “We believe that if you make it easy for someone to leave, they might one day come back because in fact the grass isn’t always greener on the other side of the fence.”

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