Light shed on trail book sale confusion

A financial services lawyer has been able to outline how privacy legislation impacts on the selling of financial advisers' client books in the wake of Money Management's reporting on difficulties faced by one adviser recently.

Last week Money Management reported the adviser, who did not wish to be named, hit a hurdle when two fund managers involved in the trail book sale - Macquarie Structured Investments and Synergy Capital Management - requested confirmation that clients involved in the book sale had been informed of (and approved of) the move.

Due to out of date contact information, the adviser was unable to contact many of the clients involved, although the original licensee has approved the transfer and both managers have now switched the trailing revenue over.

Mark Halsey from Halsey Legal Services in Perth said that prior to 2003, from a privacy law perspective, each client needed to actively consent or 'opt-in' to the transfer because a client's confidential information would have to be shared. This does not mean the privacy guidelines were necessarily followed in the majority of cases, he added.

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Halsey Legal negotiated on a case in 2003 that was reported on at the time by Money Management where AXA advisers approached the privacy watchdog over fears they would be unable to take clients with them in the event they switched licensees.

The finding - supportive of advisers being able to take clients with them - created a framework over how privacy guidelines were interpreted in such situations, according to Halsey.

The result was "a new protocol for client transfers, which still applies and is referred to on the website of the Office of the Australian Information Commissioner," he said.

"In order to comply with the privacy legislation, there was and is a clear requirement to contact each client to consult with them in relation to having their private information transferred, unless the clients have previously agreed to such a transfer," Halsey said.

But a key point of difference under the 'new' protocol is that active client consent is no longer necessary. Rather, if clients do not respond to a notification seeking their consent to transfer, the default position is that their private information can be transferred - essentially an 'opt-out' arrangement, according to Halsey. This process has been referred to in some circles as a "bulk-transfer", he added.

Although several experts including Gold Seal director Claire Wivell-Plater and practice broker Stephen Prendeville of Forte Asset Solutions indicated the approach taken by Macquarie and Synergy in the recent case is the exception rather than the rule, Halsey said an adviser in that situation would have little recourse to object.

The 'opt-out' protocol only works if all parties - clients, advisers, dealers and fund managers - are willing to participate in the process and it is potentially always open to any party to demand strict adherence with the legislation, he said.