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Pru warns poor client agreements could scupper acquisitions

by Michelle Abrego on Feb 08, 2013 at 11:25

Pru warns poor client agreements could scupper acquisitions

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.

11 comments so far. Why not have your say?

Usually found sitting on the fence

Feb 08, 2013 at 12:04

When firm A takes over firm B, whatever the agreement signed by client C, surely they still have to service that client. So if firm B has such a ckause/statement in their agreement is fine, but firm A cannot justify taking the Adviser Charge unless they intend continuing the advice. The fact the client can then move to another firm, means the value of any advisory firm is questionable. RDR does however favour bigger firms, as the client may not have a single relationship with one adviser and therefore be happy to continue being looked after by the same staff, if not the same company owner. Or have I missed something obvious?

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Sam Caunt

Feb 08, 2013 at 12:30

I would suggest 90% of advisers are replicating the old commission system - 3% plus trail of 0.5% and calling it an adviser charge. They are relying on modified standard client agreements and are not making any provision for what service they are actually providing each individual client with. We have found it vital to provide clients with a bespoke scope of work document in order to comply with the principles of the RDR - and VAT issues. The client agreement is an additional document. The Pru has only highlighted one issue of poor client agreements - most advisers are relying to heavily on ineffective client agreements.

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Andy King

Feb 08, 2013 at 15:28

if an adviser has a service agreement in place he must provide that service

we all have such an agreement but the chances of two being identical are very slim IMHO

So if h an adviser sells his business the purchasing adviser must provide exactly the same service otherwise the client can turn off the fees

But as I have stated it is unlikely new adviser will offer the same service in which case new adviser must agree the new service with client and sign up a new agreement

wow what a lot of work which must in turn REDUCE the value of the client bank

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Paul Barnard

Feb 08, 2013 at 16:53

Stop these bloody stupid pop ups. I will reply to every post in a similar manner. Suggest everyone else copies and pastes and does the same.

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Garry Miller

Feb 08, 2013 at 17:03

This is an area of considerable focus in the current climate, and Russell and the commenters above make some good points about the potential complexities involved in transfers and novations which can make it a real time suck.

Origo has worked with a large number of industry participants to help smooth this process as much as possible. There is now a standard form for transfers and novations accepted by the product providers on Origo's Agency Administration service (see https://agencyadmin.origoservices.com).

The form (available to download from here: http://goo.gl/KP3ks) has been built to save advisers time, money and effort, and it covers:

* a number of scenarios which allow Advisers to gather all the relevant information/documentation to instigate a business to business transfer in as timely and seamless manner as possible.

* RDR compliance requirements. Major providers and distributors were responsible for creating this, including extensive input from compliance and legal departments.

In addition to transfers and novations, there is also an industry wide generic LOA/COA form available for download (from http://goo.gl/PMEoQ). As above, major providers and distributors have agreed this and many providers are already promoting it to Advisers. Post RDR, the information requirements when a client changes Adviser are more extensive than they were pre RDR. If Advisers do not use the new LOA/COA it is very likely that there will be delays and possible rejection of the instruction due it being non compliant. Some providers are currently reporting that more than 60% of all change of agent requests received post 31/12/12 are non compliant, and the adviser and client can suffer delays accordingly.

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Hugh Jars

Feb 08, 2013 at 17:05

Stop these bloody stupid pop ups.

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Tim Page

Feb 08, 2013 at 17:24

I agree with Hugh Jars.

Does any one find deeply ironic that Prudential think they have the skills necessary to tell us how to run a post-RDR advisory business?

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Paul Barnard

Feb 08, 2013 at 18:57

Yes indeed - AEGON were doing this a while ago and AVIVA offered help with streamlining admin.

And stop these bloody pop ups

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Dathan Steele

Feb 08, 2013 at 22:13

Love the ironic commentary re providers offering 'advice'. Let's face it, lots of advisers will believe what a provider tells them above all else!

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Simon Kershaw via mobile

Feb 08, 2013 at 23:04

@Tim Page

Ironically the Pru are the ONLY company I have come across which is doing what the regulator asked for. Try doing a £5k ISA transfer to Skandia and keep some semblance of sanity.

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Rob Stevenson via mobile

Feb 10, 2013 at 09:13

Anyone hoping to buy a client bank and avoid re-engagement of clients, is probably missing the point!

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