Dealer group claims restraint of trade
Risk-focused dealer group Synchron is strongly considering going to the Australian Competition and Consumer Commission (ACCC) over another dealer group charging advisers exit fees upon moving to another licensee.
Synchron director Don Trapnell told Money Management there were close to 15 authorised representatives across three states currently wishing to leave the particular licensee — which he did not name - some of whom wished to join his group.
However, their current licensee charged each departing adviser up to $20,000 professional indemnity (PI) insurance premium for run-off cover.
"I pay a pretty high PI premium because we have around 300 authorised representatives and we do not pay a separate premium for run-off cover — it's part of the overall premium that we pay," Trapnell said.
"Call it what it is — it's an exit fee. This is a premium they [licensees] are not being charged themselves, they are charging their reps an exit fee to leave their licence and just calling it something else to be convenient."
He said most of the authorised representatives in question could not afford to move.
Legal advice Synchron received suggests such actions constitute restraint of trade and unconscionable conduct.
"If they were being charged specifically by their PI insurer that amount of money in relation to advisers that terminated and left, I can understand them passing that cost on," Trapnell said.
"But they're not and if they are they need to find themselves a new PI underwriter."
Trapnell said Synchron would be exploring its options with regards to making a report to the competition watchdog.
"I genuinely believe the ACCC should be involved and we are giving very active consideration to making a report to the ACCC."
The difficulties financial advice practices face when moving licensees has received much attention in the last few months due to grandfathering arrangements leaving some businesses in limbo and what the industry had deemed ‘cheque-book recruiting'.
This topic was widely discussed at the Association of Financial Advisers (AFA) National Conference earlier this month, when Futuro boss Dennis Bashford said he had lost three businesses to a cheque-book in the last 18 months. They had soon regretted their decision.
One practice paid a six-figure amount in order to come back to Futuro, said Bashford, who was participating in a panel discussion at the conference.
"The other two had already spent their money and haven't been able to raise the finance to get out of it," he said.
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