Expert urges IFAs not to back Honister commission claim
Compliance consultant says administrators’ sale of commission streams is “perfectly good insolvency practice”.
A compliance expert has warned IFAs not to back a legal claim that could be launched against the sale by the administrators of Honister of commission income, saying that the deal is “perfectly good insolvency practice”.
Adam Samuel, a compliance consultant, author and former PIA omdudsman, said that the move by the three joint administrators from Grant Thornton to sell commissions to a corporate IFA was legally sound as “the commission belongs to Honister and not the IFAs”.
In a letter to Honister appointed representatives, Nigel Morrison, joint administrator of Honister and a partner at Grant Thornton, said that it would not transfer commission streams for free to new adviser agencies as this would not fulfil its obligation to seek the best outcome for all creditors.
Advisers will have to pay a percentage of commission earned over the past 12 months as an upfront fee to MacRobin Ltd, the firm which has acquired the commissions, to novate their recurring income.
Burns Anderson advisers will have to pay as much as 53 per cent of income earned over the 12 months to 30 June 2012. Sage Financial and Honister Partners advisers will have to pay 20 per cent and 3 per cent respectively.
Law firm Regulatory Legal has said it is looking to launch a legal claim against the move and has sent an email asking IFAs to pay £600 each, including VAT, to seek a declaration in court that Grant Thornton cannot transfer commission to an unconnected firm.
In the email, the law firm says that if enough firms agree to support the claim it will instruct a QC to seek the declaration next week, prior to all the transfers being completed. The deadline to agree to supporting the claim is Thursday (2 August) at 5pm.
The email said: “We will instruct counsel on Friday afternoon if we have the support to make the application next week. Maybe we will bring the FSA [Financial Services Authority] as interested party. After all, they approved the appointment of GT.
“We feel that the moral position is unarguably in favour of AR firms / RI’s. The legal position needs clarifying.”
Gareth Fatchett (pictured), partner at Regulatory Legal, told FTAdviser that a “decent number” of firms have already said yes.
He said: “We have an odd situation where a small IFA has bought the right to service 900 advisers clients. That on any analysis will not benefit clients. The contractual position needs to be clarified.”
However, Mr Samuel told FTAdviser: “Grant Thornton is a professional firm who know what they are doing and their job is to get the maximum value out of the business. I cannot see what Regulatory Legal is arguing about.
“My advice to IFAs would be to not even think about paying money into the hands of this firm who brought you a failed Arch Cru judicial review claim. Do not give money to that firm.”