Licensees not required to send opt-out letters to clients
Licensees are not required to provide letters to financial planning clients informing them that they are being transferred to another licensee with the established practice within the planning sector having no basis under the law.
Radar Results principal, John Birt, said that many planners and licensees had, since 2008, been sending letters to clients when they were transferred in bulk to another licensee under the belief this was required under the Privacy Act.
These opt-out letters also allowed clients to choose to stay with their current licensee if they responded within a nominated time period. Similiar style letters were also in use prior to 2008 by some advisers who were restricted from accessing clients after leaving a licensee unless they had secured written permission to do so.
Birt said that while these newer letters may be used at the time of a sale of a practice or book of clients and provide information about the reasons for the shift and the new adviser it is not required under any law nor is there a specific direction or policy from the Australian Securities and Investments Commission on the matter.
“It seems there is no legal requirement to provide an opt-out letter, but the practice has become so entrenched that people assume there is some requirement. If asked to justify why they are required, I do not believe it could be explained on privacy grounds,” Birt said.
“Some industry experts in this mergers and acquisitions space believe it's a ploy by Licensee's to try and retain some of their planning clients. In reality, very few planning clients ever wrote back or even returned the letters.”
Birt said he had checked with Nicholas O'Donohue & Co Senior Associate – Financial Services, Adrian Lynch, who confirmed there was no regulatory or statutory requirement to provide opt-out and the Privacy Act held no provisions that prohibit a business from selling records containing personal information to another business.
Lynch said this was allowed since the primary purpose for which a client’s information was given was for them to receive financial advice and where this position would not change under a new licensee the existing licensee could disclose and pass on client information at the time of a sale.
AUTHOR
Jason Spits
Recommended for you
Two commentators have shared why cultural alignment can be the biggest deal breaker when it comes to advice M&A and how to ensure a successful fit.
With an abundance of private market options coming to market, due diligence becomes increasingly important as advisers separate the wheat from the chaff, adviser Charlie Viola has said.
The Treasury has launched a consultation into how the $47 million special levy for the Compensation Scheme of Last Resort will be funded.
With the final tally for FY25 now confirmed, how many advisers left during the financial year and how does it compare to the previous year?
