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Raymond James calls for restrictive covenant protocol post Towry

by Alex Steger on Feb 15, 2012 at 08:03

Raymond James calls for restrictive covenant protocol post Towry

Raymond James has called for an industry agreed protocol on restrictive covenants in IFA contracts, in the wake of its High Court victory over Towry.

Yesterday Raymond James and seven former Edward Jones advisers defeated Towry in a two year long court battle over alleged client solicitation.

Raymond James was also awarded its £1.2 million costs on an indemnity basis, meaning there is a high chance all the £1.2 million claimed will be recovered, with Towry ordered to pay £600,000 of it within 21 days.

Towry has not disclosed its costs for the case which centred on whether the seven former Edward Jones advisers had breached the terms of their contracts and solicited clients, in the aftermath of Towry’s acquisition of Edward Jones in 2009.

Much of the case focused on the nature of non-solicitation clauses, as in Towry adviser contracts, and non-dealing clauses, as in Edward Jones - and therefore the defendants - adviser contracts.

Speaking after the judgement Raymond James head of business development David Hazelton said the industry needed to have a set protocol on restrictive covenants as clients should be free to deal with whoever they liked.

‘This whole issue of restrictive covenants needs to be addressed,’ he said. ‘This has been a great case as it clarified some things, but the whole thing that has been forgotten in this is the client.

‘What we need to do is have some kind of industry protocol which makes sure that the start point is the client not the vested interest of either the adviser or the investment management firm.

‘What’s clear about this case is that there is a difference between a non-solicitation clause and a non-dealing clause. But even a non-dealing clause particularly with restrictions over 12 months is very much against the benefit of the customer who should be able to choose who they deal with.'

Hazleton is set to chair a working party set up by the Tax Incentivised Saving Association (Tisa) which will aim to achieve industry consensus on restrictive covenants.

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24 comments so far. Why not have your say?

Paul Barnard

Feb 15, 2012 at 08:34

I bet he changes his tune when a load of their advisers leave in future.

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Paul Howard

Feb 15, 2012 at 09:05

Paul

I was thinking that too!

Atleast he confirmed them most important factor is the customer- and who they want to deal with.

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The Party's Over

Feb 15, 2012 at 09:10

The main issue here and in the judgement as well is not non-solicitation but non-dealing, the latter which is used by a purchasing company to have a catch all if the former doesn't work properly.

The problem here is that the client doesn't have a choice at all but in effect is told that it's either the purchasing company or another adviser except the one they may have known for twenty years.

This cannot be right.

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Michael Middleton

Feb 15, 2012 at 09:12

Mr Hazleton's reported remarks make no sense. If on the one hand it is the client's interest that are the most important then it cannot be feasible in anyway shape or form to have a covenant restricting anything. It looks from the little I have seen of the judgement that this together with the clients right to turn off renewal /trail post RDR renders most emloyed /contracted adviser business models useless.

The effect seems to confirm the power to contract with an adviser rests with the client and the power to whom fees are paid rests with the client. Challenging times for national IFA's, networks and model's like Towry's and maybe RJ.

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Philip Dodd

Feb 15, 2012 at 09:12

So, who is going to pay top dollar to acquire advisory firms now?

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Jeremy Edwards

Feb 15, 2012 at 09:22

Our company adviser contracts assume that advisers will want to transfer clients to their new employer/principal when they leave, but that if they don't we have a duty to offer advice to clients who are not being actively advised.

The only problem with this is that anyone who wants to buy our company will have to face reality about "client ownership", i.e. you don't! This has a major effect on our business valuation and I would suggest that most predators/white knights are overpaying.

That said we have had very, very few leavers.

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Charlie123

Feb 15, 2012 at 09:38

It looks like RJIS do not "own" any client bank, the advisers are their only "clients", they offer a service to support Adviser businesses.

http://www.rjis.co.uk/

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Paul Boyd

Feb 15, 2012 at 09:46

Paying for firms has always been a lottery especially where the advosers who bring the clients in remain in the industry.Business owneres should either employ the advisers so they retain all rights to the clients or just provide a service to self employed for a fee.In reality I know of many IFA firms who have and still do want it both ways ie they want the advisers self employed to save NI and tax but treat them like employees when it comes to the advisers clients if they leave.So yes this does need clearing up ,but IFA owners are often culpable in this ,as we now see!I would be very wary of paying any IFA up front unless he was actually retiring.

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James Clancy

Feb 15, 2012 at 09:49

By all means have a non agreed protocol on restrictive covenants in adviser contract. In reality if the client wants to go with his excising adviser he will go.

If that is the case then the client should be informed that any future or past potential claim will transfer with the client from the current firm to the adviser or his new company The adviser or the company he is going to should agree to pick up the regulatory reasonability for the client past and present advice, after all he was the one who gave and he should accept the responsible for that advice.

Advisers/employees cannot have it both ways were leave a company and park potential liability with their former firm. If the new firm and adviser do not want to take that financial responsibility then he both the adviser and their new firm should respect the covenant.

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Julian Stevens

Feb 15, 2012 at 09:50

I think it highly unlikely that many, if any, firms will agree to follow such a code and remove restrictive covenant clauses from their contracts of engagement. People considering leaving one firm to join another could insist on agreeing the terms of their new contract before they jump ship, but (as happened to me some years ago), once they've taken up their new post, the new employer can then simply present them with a revised version that suits him and not you. By that stage in the proceedings, there's little if anything the victim can do about it other than walk away and start looking for another job from a position of not having any income, which is hardly a great place to be.

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Simon Mansell

Feb 15, 2012 at 10:19

Some years ago a I knew of a senior adviser who went bankrupt due to former advisers churning his clients. Foolishly he did not have a restrictive covenant, had paid them on indemnity and as a result of the “off’s” was left with the indemnity clawback.

Raymond Jones says: “12 months is very much against the benefit of the customer who should be able to choose who they deal with.” It’s not quite as simplistic as this Mr Jones when you are dealing with product that can have an accrual period of up to four years. An ex-adviser who has knowledge of your clients (Fact Finds etc), strategic information may be an attractive asset to a competitor seeking to encroach upon your market and financial firm are entitled to the same protection as every other commercial firm.There are a number of such firms & Networks geared up to this practice!

This industry does “not” need to have a set protocol on restrictive covenants and whilst clients should be free to deal with whoever they liked, former advisers should not be free to market them until a “reasonable” time has elapsed as is the case in commercial law. This industry does not need yet another set of different rules.

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James Clancy

Feb 15, 2012 at 10:33

Agree with your comments Julian, as your situation

Employers cannot have it both ways either. Within whatever code is set up there should be a confidentially clause signed surrounding negations and any terms made prior the move should legal honour. In addition all parties should respect any convents agreed to in the current contract.

You cannot stop anybody moving, or clients moving with their adviser. So let come up with a set of rules that make sense .Mind you the lawyer’s may have a million reasons to disagree

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An Employer

Feb 15, 2012 at 10:50

When an IFA joins a firm if he/she doesnt like the restrictions then they shouldnt join if they do and then leave disregarding the restrictions means they are in breach of the agreement.

They should then be dealt with and subject to the full force of the law. Criminals who get caught go to jail!

Stealing the IP from a compnay is theft.

If an IFA brings their own clients, they should agree novation clauses at the start so that when moving on they do not need to resort to theft.

There should be a non dealing clause for 12 months as a standard regulatory clause to allow dust to settle when an IFA moves posts allowing clients to make timely decisions.

Clients dont sign an IFA contract, they trust an IFA to behave with integrity and professionally, too often I have seen clients plans "churned" becasue an IFA has moved on and taken a firms clients - which has cost the client money (although the clients are usually unaware of this).

IFA's - if you dont like restrictions that provide commercial protection and client stability then pay your own regulatory fees, PI insurance and employ staff, premises etc.

It is always the wealthy & valuable clients that make contact with an Ex IFA rendering a non solicitation clause useless. Funny that !!!!

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Leslie Squires

Feb 15, 2012 at 11:42

I am in agreement with David Hazleton, there needs to be an industry protocol which makes sure that the start point is the client and not the vested interest of either the adviser or the investment management firm. In my opinion, the client should have the choice of where he or she wishes to place her business and providing that they initiate the contact with their adviser following his/her departure from a previous employer and sign a declaration to this effect, this right should be sacrosanct.

That said I am also of the opinion that the previous employer or any new employer should be able to exercise their rights to protect their business. My understanding is that a restrictive clause is enforceable if it is deemed to be fair and reasonable on both parties and is in the public interest. If there was an industry protocol that stipulated a reasonable time frame of say twelve months where an Adviser would not be able to initiate any financial services business with any client of a previous employer, save those exercising their right to continue with the said Adviser, this clause would not restrict an Adviser from pursuing his or her living and be enforceable.

Clearly, the industry would need to accept that under this protocol a new adviser joining an investment firm may not be able to bring his or her client bank with them. Therefore a target stipulation of say £90,000 per month fees or assets under management of £10,000,000 in the first twelve months may not be realistic and was probably a contributory factor where Advisers ignored restrictive covenants in the past. One thing is for sure, recruitment would take on a very different outlook.

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Stuart Turnbull

Feb 15, 2012 at 14:19

To An Employer Feb 15, 2012 at 10:50:

In some things I agree with you. But the case that has caused this doesn't fall into your otherwise neat summation.

The 7 Advisers did not choose to join TL, they and the client base they had created were 'sold' by EJ.

they chose not to sign TL contracts, and the EJ contracts(from memory) did not state that you could not tell a client: 'I am leaving, but if you wish to contact me to continue as your advisor, you can.'

so no, it is not funny in any way that clients follow advisers.

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Mr Jason Charles-Bourne ACIDP, IFSOFA

Feb 15, 2012 at 15:01

What really matters is what the client wants to happen. Not what either the present or former employer or present or former employee /adviser wants. Many clients are horrified to find they are treated like a piece of meat and their 'business' is referred to in this way as if they have no say. If the client did see such wordings in restrictive covenant contracts restricting their affairs, their choice or ability/freedom to move or deal with whom they like, most would avoid in the first place. Wake up and smell the coffee. They (clients) have rights too. The right to deal with whom they want to and to pay who they want to!

People fail to grasp that RDR post 2012 empowers the client in any event. If the client does not agree the remuneration structure guess what no amount ot restrictive covenant is going to force him who to write out his cheque to or set up the direct debit. He (or she) simply goes where he (or she) wants to go not due to an unintended consequence (for them anyway) of some restrictive covenant placement scheme.

This RDR logic applies to new fee agreed business although granted legacy trail only commission will be the exception for a while (until it crosses the financial adviser agreed remuneration line or where there is some trail or some non trail). Dark age 'restrictive covenant' practices protecting client ownership through unacceptable creative legal work is not consistent with RDR. In the RDR world the only thing that protects the employer is the client fee agreement contract and the issue becomes whether the client signs the agreement or not and whether the client pays the fee or not. This is good news for the client. Only the likes of Towry can hide behind the smokescreen that it is a contract between the insurer and client, then provide no service to the clent whatsoever yet still keep the trail commission! Bad or sharp business practice, poor value, is eventually found out.

Employers who have their act together on RDR with a good business model have nothing to fear - other than trying to keep both the client and the adviser on board. Look after both, and they have an unbreakable business model moving forward. Upset either party and that business is potentially lost forever. Employers need to worry about whether their business model is not only right for the client but also for the advisers they need to keep. The days of x3 or x4 validation or excessive targets will not survive RDR. Profitability and business survival will be the new focus, that is based on being 'client driven' not 'contract/terms of employment driven' which is a non sensical approach.

So is this the last we will see of Towry as the predatory employer now that it has lost the legal protection it thought it had and lost the tools for doing the job - after all this was behind its rationale to purchase ailing firms when trying to grab the legacy commission book and to hell with client servicing and adviser staff? Time for a name change and ceo by the private equity backers - will they seriously be thinking of selling out?

The case was a very limited victory in battle for the client in the pre RDR world. In the post RDR world the client holds all the heavy artillery to win the war.

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Bob Donaldson

Feb 15, 2012 at 15:18

I have always viewed my business as having no value as it is centred round me, the advice that I give and the long term relationship built up with clients and the trust they they give you.

This does not mean that when I retire nobody will be able to take over my clients and offer them the same or even a better service. However, if a client does not like the new advisor taking over then they will be free to walk and take their business anywhere they like.

People deal with people they like and often have an affinity with. Our industry has always been a people industry. The FSA, advisory firms and individuals should remember this as it is unlikely to change. God forbid if we end up like solicitors and accountants.

One good tip given many years ago was look after your clients and they will look after you hence when an individual moves companies they should be free to take them with them if the client wishes to go.

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Julian Stevens

Feb 15, 2012 at 15:36

To reply to Mr JCB ~ I'm not sure there's much mileage in any employer trying to claim that they "own" any clients or even that they "own" the company's relationship with them.

However, the company may well have invested significant resources in acquiring those clients in the first place and in keeping them as clients over the long term (all businesses have overheads). So, if an employee or consultant jumps ship and tries to solicit those clients away, the company may consider itself entitled to claim that the consultant has taken advantage of all the support given to him (or her) to get the client/s onboard in the first place and is now seeking to poach them away, either to their own company or to a rival that's made no such investment.

But, that aside, TL was never in a position to make any such claim, for the simple reason that it was effectively handed the entire EJ client bank on a plate, FOC and then failed to service it properly. So on what basis was TL trying to justify projected losses totalling £5.8m in respect of just 388 clients (a tiny proportion of the entire EJ client bank) that cost it nothing to acquire in the first place?

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RP

Feb 15, 2012 at 17:10

How can Fisher expect a non-dealing clause to be enforceable after this, he's saying a client can't deal with whom ever they want to? I look forward to the slow demise of this ego maniacs company!

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Rob Stevenson

Feb 16, 2012 at 09:10

Acquisitions can be messy and dangerous. Big acquisitions that include a salesforce, more so.

Towry have done a bunch of acquisitions in the past and as the saying goes, nothing fails like success.

Businesses should be able to protect their IP and other assets, but there must be a balance and preferably one that keeps the client in mind!

As for RJ and the suggestion of an industry protocol, when you win it's usually a good idea to shuffle off quietly, lest you get well and truely owned at some point in the future.

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Bindair Dundat 2

Feb 16, 2012 at 10:08

Having spent a few days in the High Court on one of these it is without doubt nigh on impossible to enforce a restrictive covenant in relation to solicitation. I can understand how Andrew Fisher has less than endeared himself to some members of the IFA community and more recently EJ advisers but if you take away all the emotional rhetoric and AF kicking there are some deeper issues that will have an increasing impact on how business owners/shareholders address the issue of bringing people into their business. They may also think twice about doing so.

There are a number of scenarios in play but what we do know is that there will be fewer advisers about next year, the majority of whom will be better qualified than they have been (at least the SPS will testify this) and they will be more aware of their worth and therefore demand more. So, if you are a shareholder owned advisory business with a significant client bank wishing to grow your profits and deliver a decent shareholder return how do you attract and retain the right quality of staff ?(both advisory and back office personnel) Once you have got them in how do you then protect your client bank should they exit?

The TL /EJ issue was largely about understanding what is being purchased at the time – there is a tax angle here in terms of offsetting losses so Andrew and his gang although miffed, no doubt that they were legally put through the wringer, they will, I am sure feel that they made the right call and had the financials to see it through. The enforcement of the covenants in the EJ contract was always going to be more challenging on the basis that there was no non dealing clause.

Here we have an acquisition which is one way to grow but only if the soft, cultural stuff can be ironed out. The numbers clearly added up but the end result was a Lloyds/TSB scenario (or dare I say an AXA Equity & Law/Sun Life scenario) whereby parties from both camps have behaviours so culturally apart they will do whatever they can to make life difficult for the other which is hardly a recipe for growth. Taking costs out is easy, driving the revenues and the profit a tad tougher in these circumstances.

Another scenario is the entrepreneurial businessman who decides he has too many clients to service in a post RDR world given that he has client agreements to see his top tier of clients at least once a year – he recognises that he needs to take someone on who is well qualified. This individual demands a decent package on an employed basis. He is duly hired and allocated a chunk of client bank. After a couple of years he decides to leave and takes a number of clients with him – Is this right, fair and proper given that he brought nothing to the party when he joined the small IFA firm? Not in my view.

Restrictive covenants in contracts are necessary particularly in the above scenario – client ownership, is a misnomer as it is simply about who holds the servicing and marketing rights. This offers the firm (regardless of size) an opportunity over what is, let’s face it a relatively short period of time with a 12 month non-dealing clause, to hire another adviser and revisit the client.

All very messy – so is there a better way to protect your client bank? – absolutely, move away from the “lone wolf” salesman approach and work in a collegiate way – If the client has a relationship with the firm rather than the individual adviser the chances are they stay put – It requires a redesign of offering which the RDR may well drive and a change of mind-set.

I sense there is a little cloud of smugness that sits over the “perceived” winners in this case (ironic, given Andrew’s persona and in particular as defined by the defence brief) but folk should take care in that they too have a bank of clients they may wish to protect, particularly as they, if they intend to, wish to grow their business.

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Leslie Squires

Feb 16, 2012 at 10:47

@ Bindair Dundat 2. Eloquently stated but I would like to learn more of “ your move away from the ‘lone wolf’ salesman approach and work in a collegiate way” – without wishing to put words into your mouth, are you suggesting that the client signs a contractual arrangement with an adviser firm to the extent that he/she cannot seek advice elsewhere within a given period of time?

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Mr Jason Charles-Bourne ACIDP, IFSOFA

Feb 16, 2012 at 15:08

Thanks Julian. As ever your comments are appreciated and contribute greatly to these forum issues. I appreciate Bindair's comments and perspective too.

In my view the real world, however, is rarely fully catered by most restrictive covenants. The intricacies of law are seldom discussed by both parties at the hiring stage. I can understand why. The depth of ‘what if’ situations which need to be gone though at pre joining phase either by the employer or the employee/ adviser is a bridge too far. Too often the employer just wants the employee/ adviser on board and on the other side the employee/adviser wants to join and get started as soon as possible. Ironically in these early days the employee/ adviser can often be too busy contacting ‘their non owned’ existing clients, a practice often encouraged by the new employer (double standards or just the real world of self preservation perhaps?). We should not forget that many employers these days are often only interested in employing advisers who have got existing client banks. Sensible ring fencing discussions are the most realistic way to handle this rather than straying too far down the legal employment contract route.

Protracted discussions about ‘client ownership’ are way down the pecking order at the hiring stage. As said many times, no one owns any client. Even if various hypothetical discussions did take place about ownership, very often the eventual client bank that an adviser ends up with 3-5 years down the line cannot be predicted. It is impractical to have lawyers on both sides pore over the employment contract law minutiae about each hypothetical future case (otherwise this would be happening as an every day event rest assured). I fully appreciate the argument that employers have interests to protect (shareholders demand this) and not every employer uses Towry predatory tactics or sharp practice to acquire clients/ market share.

For any large employee benefit IFA firm to lose a top FTSE100 client e.g. a group pension scheme (not that there are many group final salary schemes left anymore) it is clearly a bigger quantifiable financial loss than if a smaller or regional IFA firm loses a niche bank of adviser related clients. In that context employers naturally must do what they can to protect their interests. However, even in this FTSE100 example one adviser is unlikely to have such sway greater than a large quality employee benefits firm which would probably have the infrastructure, back up/ admin/ para-planning teams to have attracted that FTSE100 corporate client in the first place. Unlikely the adviser would take all or any of the staff and computer software too though yes whole teams can follow some ‘halo’ advisers on rare occasions. The adviser is more likely to take the odd directors/ HNW affairs rather than the whole corporate client. In this case the large corporate IFA can be confident its brand image etc is the reason that attracted the FTSE100 client in the first place and one adviser leaving has no bearing and an employer has little to fear (except trying to improve the lot of the client to keep them on board but that’s life).

Away from the large corporate IFA argument, the situation is far more complicated to legislate against in the vast majority of adviser cases. To give some examples. Very often the employee/ adviser may have brought clients to company. That adviser may also have brought professional connections who in turn generate further new clients. Some clients may be the spouse, children, family, inheritances, friends, or gained through their network association efforts. The failure of Towry to uphold Edward Jones contracts is a case in hand, recognising some of these issues (as Mrs Justice Cox appears to draw inference). There are other grey area examples of where an employer does nothing to bring new clients to the table where it is only through the adviser’s efforts that any business is written at all. So exactly what employer expenditure or client bank are we talking about if there is no infrastructure, no brand, no support – quantifying this is problematical at best? In some cases it may be only 10% of all client business stems from a company and 90% from the adviser - who has greater influence over securing the business relationship of such clients? Thee issues may not be apparent until years down the line. Restrictive covenants blindly and inflexibly ignore the 90% factor. Ultimately the client relationship is the overwhelming factor. The only certainty is that the client decides where to take their business.

In an age of transparency where clients’ views cannot be swept aside or masked in a clandestine legal document not written with their objectives in mind, the ultimate deciding factor is what the client wants. These issues are never brought out in the open as far as the client is concerned until a severance arises. How many employer restrictive covenants firms would be equally brave to have alongside a restrictive covenant a wording in a client agreement allowing the client to choose their own destiny? If you start to look at things from a client perspective then restrictive covenant employment law has a whole different meaning. Most judges increasingly agree unless a technicality found. Most restrictive covenants are there to warn, scaremonger and imply the worst may happen if... rather than to take former employees to court. Thanks to Towry’s efforts and failure in doing its best to vindictively bankrupt personal advisers, their stance and wordings contained in restrictive covenants in general are now called into question. Like power and authority, it is the threat of using power that forces many into line even though you cannot use force or power every day. If you subsequently use your power and that fails, there is no authority and it is the underlying perceived threat of the restrictive covenant that secures results for an employer.

It is rare that a corporate IFA employer has a sufficiently powerful brand in its own right (the likes of Hargreaves Lansdown may argue differently) for the client to stay loyal ahead of a strong ‘unwritten’ client/ individual adviser bonding relationship. The employer has to bring something very unique or binding to supersede bond and a restrictive covenant is far from the answer to lock in a client. In the future strong chartered firms may come closer to this ideal without need for restrictive covenants. More likely it is wealth management systems or platform ease that cannot be easily replicated which may prove decisive in retaining clients. An employer’s terms of business or client agreement should make the client aware they operate restrictive covenants. Restrictive covenants should be brought to the client’s attention at outset rather than keep the client in the dark.

Even if restrictive covenants are in place, the bond between an adviser and client is often so strong that a restrictive covenant of six months or so only delays the inevitable. This is not long enough to adequately protect business interests in any event. The mere existence of the restricted covenant is like red rag to a bull for some clients making them even more determined to follow their longstanding adviser. Six months is not long enough for a newly reallocated IFA adviser to cement a new relationship with the client. The last thing a client wants is an overbearing new adviser telling them what they can or can’t do, especially if under pressure to write business to hit targets. If the new adviser persuades the client as to why the client should stay loyal to the existing company the decision is the client’s alone. Data protection is often the key issue in any winnable case. If the brand is strong enough clients won't need to be persuaded to stay.

In a post RDR world, the real point is that clients are more empowered and hold all the aces, not the adviser nor the existing IFA employer. The client agreement or willingness to continue one is all that really matters. The client does not deserve to have their affairs embroiled in complex employment law. The restrictive covenant is often just an inconvenience while they sort out their affairs - either way. Anything longer than 6 months is unworkable anyway (12 months is far too long to be acceptable European law) but 6 months is not a long time for a client to wait to be reacquainted with an outgoing adviser if they so wish (or choose to stay with their existing IFA firm).

If the adviser leaving is the best thing since sliced bread in the client’s eyes, with full chartered status etc, has done a good trusted job for the client over many years, no complaints, liked a lot by the client compared to a newly appointed adviser only Level 4 qualified, little experience, unable to build client relations, which one does the client choose and why? Would a restrictive covenant of 6 months stand in their way or would the relationship and desire to continue that relationship have greater sway?

Regulators sit on the fence in employment law issues but nevertheless it is for the regulators to weed out churners or bad advice advisers who move on regularly with bad practice (that’s a different issue entirely). Nowadays the FSA has the tools to throw the book at them and they are likely saddled with the liability and fines too. When it comes to the post RDR world, the regulators will always take the client’s views first (and their protection) and client agreements will simply be torn up if the client wishes to terminate these or if they are upset by the audacity of firms ‘trying on’ restrictive covenants. Many see this as encroaching on their affairs and their right to decide.

Staying with an existing firm does not always protect clients either as we have seen (Towry case in hand as evidenced by FSA fines, enraged client websites to bring action etc). From a client’s perspective, if a client thinks they have found a good adviser, they will move hell and high water to keep them and no restrictive covenant will stand in their way. These Raymond James ex Edward Jones employees fully observed the contact law in any event (as proven). Ultimately the ‘client’ has the greatest say in what happens to their affairs, not employment contracts. Admittedly advisers who get it wrong will pay a heavy penalty not the client.

All leaving employee/ advisers should still tread very carefully and act within the law, as not all cases are as simple as the Towry case where they acquired an existing client bank with grey EJ employee contract terms as part of an acquisition. The Towry machine rushed EJ advisers to sign new Towry contracts believing they were more enforceable, having prosecuted others. All employers will now need to revisit their restrictive covenants or stop hiding behind them in the light of the Towry defeat and RDR.

Is ‘adviser agreed remuneration’ with signed client agreements under RDR a step too far for most restrictive covenants if they stand in the way of what the client wants to happen? Will it prevent them from achieving their objectives? If so, will the FSA now come off the fence and contribute more to laying out the rules of engagement in such instances if, upon investigation, either outcome causes unnecessary detriment to the client? A notice period in client agreement may be a simpler way forward with the client choosing between a 4, 6 or 8 months notice to terminate period upon a change of adviser. It increases the longer the client has been with the firm.

I agree that an industry protocol could help. If there is anything to be learned any move should be designed to make the industry more professional in the eyes of the public not done in closed vaccum with clients wondering whats going on. Get it wrong and you tarnish the industry's reputation even further than it is in the eyes of the public.Such is fragile nature of our profession other high profile court cases do nothing to grow a professionalism within the industry in the eyes of the client.

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Jason C

Feb 17, 2012 at 13:03

Wow - a good read Jason and you raise some very good points.

The client should always have the freedom of choice to choose who they wish to look after their affairs and whilst it is right that firms have the ability to protect their business interests, this should never be to the extent of enslaving the clients to the firm.

In my opinion firms placing non dealing clauses in employment contracts are essentially doing this. This is completely against RDR and TCF outcome 6.

Whilst non-solicitation clauses can make things difficult to judge for an adviser moving (as they dont know how much business would follow) they do essentially provide the firm with a chance to protect their business interest to the extent of trying to establish a relationship with the client for ongoing business.

But as Jason says if the trust and relationship that the client has is with the adviser then they will track down their Adviser and want to deal with them - they should absolutely be allowed to do this and the adviser should be allowed to look after them again in their new home without fear of being dragged through the courts.

I am proud to work for Raymond James and I can happily say that we do not have any restritctions on an Adviser's ability to contact, solicit and deal with clients should they decide to leave the firm. As long as we provide a competitve service to Advisers serving clients that they have a relationship with they wont want to leave us. A fairly compelling proposition, I feel.

Congratulations once again to the Advisers concerned.

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