A year on from the legal battle between national firms Towry and Raymond James, the IFA community is closer than ever to reaching an agreed protocol on client ownership.
However, despite the progress, challenges remain to reaching a set of principals that would both give clients the freedom to choose their adviser and protect firms against losing clients and assets.
In February 2012 a judge ruled against Towry after it sued Raymond James and seven advisers which it alleged had solicited clients.
While the ruling spurred the profession into action, with the Tax Incentivised Savings Association (Tisa) forming a committee aimed at reaching an agreed protocol on client ownership, it also highlighted the need for firms to have watertight adviser contracts.
This conflict is at the heart of current Tisa discussions, and reflects the profession-wide clash between the greater transparency and client-centricity brought about by the retail distribution review (RDR) and firms’ need to retain advisers, clients and assets to boost all-important recurring revenues.
Robert Campbell (pictured above), partner at solicitor firm Faegre Baker Daniels, who represented Raymond James against Towry, said an ideal protocol would introduce a period in which a client can be contacted by an adviser leaving a firm and by the firm itself, and allow them to choose which to have as their adviser.
‘This is a move toward something that’s in the client interest because it causes both [the departing adviser and their old firm] to be as frank and transparent with the client as they possibly can be,’ said Campbell.
This would result in better outcomes for clients because IFAs would advise clients for the long term, in the knowledge they could take them with them if they moved firms, he said.
‘There would undoubtedly be more transparency. The client needs to know what they’re paying for, what they’re getting and what’s motivating the guy that’s advising them. If someone is at a firm where he knows his relationship will be severed [if he leaves], inevitably the longer-term interests of the relationship with the client are not going to be as prominent’ he said.
Tighter contractual covenants
Campbell said the Towry case also highlighted the importance of having stricter restrictive covenants in adviser contracts, which would prohibit them from having any contact with clients.
‘A new contract today would have a non-dealing clause,’ he said. ‘The prevailing view is that a non-solicitation clause does not give you the protection you would want if you’re investing in training somebody. Given the training requirements now, you want to protect your investment, so I suspect there will be a migration towards non-dealing clauses.’
Peter Smith, Tisa head of distribution engagement, who sits on the committee, said it was working towards a protocol that included a period of grace in which both adviser and firm could approach the client.
The 20-member group includes representatives from networks Tenet, St James’s Place, Raymond James and Intrinsic, and trade bodies IFA Centre and the Association of Professional Financial Advisers.
The group has agreed on a working draft, which is being scrutinised by lawyers at Pinsent Masons and Faegre Baker Daniels.
Smith said: ‘[The goal] of the protocol to give an equal opportunity to speak to the customers so the client has the opportunity to choose.’
He said the committee was split over whether this was something every firm would adopt and whether the period should last three or six months.
‘We’re treading new ground and trying to make something that doesn’t exist in the market. It’s taking us a bit of time. A lot of early discussions have been with lawyers to make sure it can hold legally.’
Keith Richards (pictured below), Tenet distribution and development director, who chairs the committee, said it was difficult to arrive at something that could be adopted by firms with different business models.
‘[We’re] making sure that, as more firms evolve their business models, conflicts do not arise when advisers leave. It’s more likely to happen in the future given that most people are trying to build recurring income through more service-orientated propositions and an adviser trying to transfer a large number of clients away from the firm could have a significant impact.’
Dennis Hall (pictured below), director of London-based Yellowtail Financial Planning, said he would welcome a client-centric protocol but was also reviewing his adviser contracts, having taken legal advice following a recent IFA departure from his firm.
‘As an employer, you invest a lot of money and time into an employee, especially if they’re a graduate; and you expose them to your professional connections, your business practice and processes, and if then they want to go and exploit those or use them as a springboard into their own business [you should have a mechanism to protect you],’ he said. ‘We do need an industry-wide standard and understanding.’