An FAAA recommendation to make PY advisers subject to non-compete clauses would place candidates in a “hostage situation” with their employer and potentially deter new entrants, say commentators.
Earlier this week, the Financial Advice Association Australia (FAAA) released its submission to Treasury regarding non-compete clauses, suggesting employers should be able to implement a non-compete period of up to two years for professional year (PY) advisers.
This stance was contrary to an initial announcement by Labor in its pre-election budget in March that it intended to abolish non-compete clauses for workers earning under $175,000 starting from 2027. Employee interests must be balanced against employers’ business interest, the FAAA said.
In its submission, the FAAA said this measure for PYs is intended to incentivise smaller advice businesses that may not be willing to take on a PY “given the increased uncertainty that they will be poached after they conclude training”. This comes as the stagnating profession struggles to bolster its numbers, with the PY acting as a significant “bottleneck”, according to the FAAA.
“Other businesses could easily offer them a pay increase to encourage them to move as a means of avoiding the cost of employing them during the professional year… We believe that in this case, there is a justified case for enabling these employers to apply a non-compete clause for a certain period after the new financial adviser completes the professional year,” the FAAA’s submission said.
However, many advisers have taken issue with the suggestion that non-compete clauses should be maintained for PYs and questioned why the FAAA would take this stance.
Independent financial adviser Nathan Fradley said: “Why would you go and work with someone who would enforce that? We are creating additional barriers in an area we can’t afford to have barriers.
“The proposition feels so unaligned with everything the FAAA is about which is what surprised me about it.”
He said he could understand the perspective of employers losing staff that they had spent time and money training, but said this wasn’t the solution. Introducing non-compete clauses for PYs into legislation, he said, would place further strain on the limited supply of aspiring advisers, exacerbating an already critical issue for the profession.
“Is this actually encouraging them to hire or is this removing the supply of people who are willing to be hired?” he told Money Management.
“It’s a further disincentive, especially in an environment where there are so few associates around, the market is starving for talent here. Like any job, bringing on someone and training them is going to be an investment with a chance that they leave, so the PY has nothing to do with it. Carving that out specifically for PYs is kind of wild.
“There’s just so many questions I have as to why they decided this was an appropriate decision.”
This sentiment has been echoed by the profession, with Peter Worn, the joint managing director of Finura Group, commenting on a LinkedIn post: “In my capacity as a non-executive director of advice firms, I cannot support the use of non-compete agreements for Professional Year advisers as proposed by the FAAA.
“Placing developing talent in what appears to be a hostage situation is fundamentally at odds with the idea of being a profession. The right way to retain PY advisers is through opportunity – pathways to equity, a compelling culture, and a supportive environment – not through restraints.”
Earlier this week, Money Management spoke with large licensees Count and Wilsons Advisory on how they had successfully retained talent from their PY programs through the use of structured pathways, financial incentives and mentoring.
From the perspective of a PY candidate, provisional adviser at PrimeAdvisory, Jackson Raddysh, said the introduction of a non-compete would slow down the hiring process for new candidates because they would know they were “locked into” a firm until the PY completion.
“You’d feel like you’re not able to exercise your free will if anything changed. It just feels a little bit limiting. It’s just very inflexible and would make you feel dejected,” Raddysh told Money Management.
“I wonder if it’s just a bit of an emotional reaction from some advice practice principals who are just kind of struggling with retention. If they’ve got in the ear of the FAAA and want some advocacy in that respect. But I don’t think it’ll help them or PYs or the profession, for that matter. It just seems a little bit counterintuitive.”
Adding on LinkedIn, he wrote: “Forcing a new adviser to work for you is a sure-fire way to continue shrinking the number of us in the profession, while compromising basic free will. If firms are concerned about losing PY advisers – enhance your value proposition to give them good reasons to stay. Being shackled to an employer is not a motivating prospect – whether they are a great place to work for or not.”
