Thanks, Nick Bruining, for drawing attention to one of the real business issues facing practitioners – that of ongoing remuneration ownership vesting with principals or advisers (Money Management, April 1).
The so-called “client ownership” debate would perhaps be able to be given a decent burial (hallelujah!), if all advisers sought to sign up with principals only under agreements which grant a blanket letter of assignment right to the adviser.
This issue is a commercial one, nothing more. All manner of mystery and mischief has arisen around client ownership disputes. Yet there can only be one reason these occur; the wording of the legal agreement between the principal and the adviser.
Either the agreement says nothing about client ownership or it clearly states that it vests with the principal. In the former case, Goliath will win. In the latter, the adviser must blame themselves for signing away their rights.
The principal always knows what the agreement contains. Does the adviser? I’d suggest not in many cases. If not, it is a logical practice risk management strategy to check the wording of the agreement for the relevant clause. Before signing, if possible.
Since the CLERP 6 initiatives were first proposed, certain antagonists within the multi-agency sector have been stirring up demons over client ownership issues (ironic, given the content of the life office agreements under which most multi-agents currently operate).
They predict from CLERP 6 that if multi-agents are forced to become life broker representatives, under whatever label, then they risk losing ownership of their clients to their new life broker principal.
This is not a legislative issue and they can’t blame CLERP 6. Any life broker principal worth their commercial salt will grant a blanket ownership right within their adviser/principal agreement. We do. Why would any adviser join a principal which doesn’t?
If the principal has not operated the relationship sufficiently well to keep the adviser on side, the only thing achieved by the leaden handcuff of client ownership is a petulant adviser with an adversarial relationship with his principal (not conducive to a cooperative compliance regimen).
At worst, if the adviser is determined to move, the clients get embroiled in a letter-by-letter bureaucratic nightmare, and that surely has to break all the golden rules of good client relationship management.
Why do principals adhere so passionately to the notion of owning the clients (banks and other in-house institutions excepted)?
Is it really in the principal’s long-term interests to have business sitting on the books which it is responsible for servicing when the principal does not have a relationship with that client? Proposed tightening of requirements to review will bring this out even further.
Most likely the adviser, having changed principals, will continue his association with the client although he is missing out on the trails his previous principal is now enjoying on certain products.
Who is responsible for advice which results in the client altering or adding to or withdrawing from that investment? Is it the new principal or the old one which is receiving trails on the product and has a responsibility to review? What other advice issues roll out of the situation?
Getting back to our lemming, Nick Bruining. With the benefit of hindsight, wouldn’t he have been saved all that nervousness if he knew he had the right rights clearly stated in his agreement? I imagine many other Hillross advisers might now be having a good look at their rights if they’ve read Nick’s latest episode.
Sue Laing is the managing director of IFMA (NSW).
