Defensive licensees stifling competition: Synchron
Many licensees are putting up "road barriers" to prevent their authorised representatives leaving for another dealer group, says Synchron director Don Trapnell.
According to Trapnell, a number of licensees are inserting draconian clauses in their 'dealer-to-dealer' agreements.
Dealer-to-dealer agreements are entered into when an adviser moves from one licensee to another, and are standard in the industry, according to Trapnell. In these agreements, one licensee usually agrees to cover the debt of another if there are writebacks; the new licensee is given access to client files; clients are offered a review within a short period of time; and clients are contacted and informed of the change in licensee.
"A number of licensees are using wordings in those dealer-to-dealer agreements which, quite frankly, we cannot sign - and I can't see how any other licensee could sign them," said Trapnell.
By way of example, Trapnell cited a clause that stipulated the new licensee "would undertake to review the needs and circumstances of every client within the next six months and recommend changes to the portfolio of investments or insurances where it seems appropriate".
While such a clause might be deemed reasonable for a financial planner with 75-100 clients, it would be impossible for a typical risk adviser (ie, a Synchron representative) who would have between 500 and 1000 clients, Trapnell said.
It would be impossible for a risk adviser to review the needs and circumstances of 500 clients in a six-month period and still do business, he said.
"We put this [clause] before our PI [professional indemnity] lawyers and said 'what do we do about this?' And their answer was under no circumstances do you sign that clause. You sign that clause and you won't be covered by your own PI," Trapnell said.
Another "road barrier" clause demanded $50,000 in compensation in order for an adviser to move to Synchron.
"We've sought legal opinion on that one, and our lawyers said there's not a snowflake's chance in hell they can do it … 'compensation for foregone profit' was the expression they used, I think," he said.
The goal of the "road barriers" is twofold, according to Trapnell: firstly, to shift PI liability to the new licensee; and secondly, to make it virtually impossible for advisers to move between licensees.
The three biggest "culprits" are institutionally owned, he said.
"I just find this disgraceful. It's an attempt to remove competition. I think competition is the cornerstone of our industry - it's what keeps premiums down low. It's what makes people work harder, and it gives clients better outcomes," Trapnell said.
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