Lawyer urges ARs to get tough after Honister trail debacle
The sale of commission income streams by the administrators of failed network Honister should prompt advisers to examine contracts before agreeing to sign up to a network, as it exemplifies the limited nature of IFA’s claims under most agreements, according to one lawyer.
Robert Wharton, head of the regulatory team at Thrings Solicitors, said that the joint administrators from Grant Thornton “appear to be well within their rights” to seek to sell recurring commission from products based on the network agreements in place.
Mr Wharton, who told FTAdviser that meetings with Honister ARs had revealed that few fully understood how limited their rights were, said that ARs would also be subject to non-solicitation restrictive covenants and would remain potentially exposed to claw-back and indemnity claims in relation to cancelled policies and subsequent complaints.
Yesterday (1 August) Adam Samuel, a compliance consultant, author and former PIA ombudsman, told FTAdviser 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”.
Grant Thornton’s move has been condemned by advisers as well as law firm Regulatory Legal, which is seeking to launch a legal claim and is asking IFAs to pay £600 each, including VAT, to seek a declaration in court that commissions cannot be transferred to an unconnected firm.
One FTAdviser reader said: “The advisers have been shafted by the administrators, perhaps some of the management as well as by a major shareholder.”
However, Mr Wharton agrees with Mr Samuel, saying: “It is Honister’s legal entitlement and the administrator is under a duty to recover as many assets as possible in the interests of Honister’s secured and unsecured creditors as a whole.
“Most AR agreements do not grant the AR a proprietary right to those trail commissions, only a simple contractual right to be paid a percentage of the trail commissions received by the network.
“The AR therefore finds itself in the unfortunate position as an unsecured creditor of the network.”
He warned that when looking at the terms of network agreements, ARs should consider who it will affect if they leave or, as in Honister’s case, if the network fails.
Mr Wharton said: “Does it allow you to take your clients with you and if so which ones? What restrictions are there on you securing your future income stream? What will you remain liable for after you leave?
“Can you negotiate specific terms that suit you - remember, IFAs are the lifeblood of networks and networks strive hard to be competitive so they attract the best IFAs. Consider therefore your negotiating position with a view to asking for changes to protect you.”