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Pru warns poor client agreements could scupper acquisitions
by Michelle Abrego on Feb 08, 2013 at 11:25
Badly worded clients agreements could prove an obstacle to selling an adviser business and reduce it value, Prudential has warned.
The life company has cautioned that poorly worded agreements could give providers an excuse not to transfer over ongoing adviser charges when one adviser buys a client bank from another.
Prudential distribution change director Russell Warwick said advisers needed to make sure their client agreements have clauses which include how an acquisition would affect charging or it could botch a possible sale of a client bank.
'The ability for providers to transfer adviser charging from one adviser to another will depend on what the client agreement is,' he said.
If the adviser sells the full legal entity of the business which has the right to receive the advice charges it is not a problem, but in the many cases this is not the case and advisers usually sell the goodwill and client bases rather than the underlying firm itself, he said.
He added that a well-worded agreement should make it clear that the client is giving consent for the adviser to transfer the provision of services and rights to receive adviser charges to another adviser
‘Unless you have the clause to sell the income stream and good will, and the customer has agreed that, it’s very questionable whether it can be moved from one adviser to another,' he said.
He said pre-retail distribution review trail commission can be changed over from adviser to adviser without being interrupted, which might lead advisers to think the same would apply for adviser charging agreements.
‘Commission was an agreement between the adviser and the provider… there was no consumer consent.’
Sheriar Bradbury, managing director of London-based Bradbury Hamilton, who has a number of acquisition deals in the pipeline, said that this would be a challenge for those looking to acquire firms and would cut the potential value of a client bank.
‘It would massively slash the value of the practice,’ he said.
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