Beware hubris on Honister bulk transfers
Charged debate is currently being dominated by intense posturing on the part of all parties.
Of all the major stories that have broken in the past few months, perhaps the one that carries the greatest significance for the adviser community in the long term is the collapse of IFA network Honister.
The fall of the firm into administration has left some 900 advisers in limbo and given product providers a headache as to their obligations towards these currently unauthorised individuals. As such, it has exposed inadequacies in the regulator’s authorisation approach and prompted many to reconsider whether operating through a network is worth the risk.
The case against joining a network was furthered last week when, to the utter shock of many, the administrators of Honister announced that a deal had been struck to sell the firm’s recurring income streams to corporate IFA MacRobins.
This means that the commission income generated by advisers from their relationships with clients is now going to be usurped by an unconnected third party, unless the adviser is willing to pay.
Depending on which entity within Honister an adviser belonged to, the rates being demanded are nothing short of scandalous. Burns Anderson Ltd advisers, for example, will be required to pay 53 per cent of trail commission earned over the previous 12 months to regain their right to this money.
But the question as to whether the administrators move in this instance is morally correct is irrelevant, it is simply of case of whether it is legal
This has rightly been met with opprobrium. Advisers’ livelihoods have been taken away and they have been asked to pay extortionate rates to get back what they will feel was theirs in the first place.
But here is the rub. For all the vituperative rhetoric that has greeted the deal, no one has been able to show that it is not legally sound.
While many may sense more than a hint of venality in the decision to sell the commission, this is not an avaricious move on the part of the trio from Grant Thornton, it is rather an attempt to fulfil their legislatively mandated duty to get the best return for all creditors.
They contend that advisers do not own the trail commission streams and that they are, therefore, just like any other unsecured creditor. If others will not get their money back in full, why should advisers?
However, a white knight - or more accurately knights, plural - seemingly came to the rescue in the form of an increasing number of product providers that have pledged to facilitate bulk transfers of clients of Honister advisers.
This meant the issuance of termination notices for the current agreements and the establishment of new agreements for these clients as and when the relevant advisers were re-authorised.
This was never going to be allowed to go unchecked. Whatever MacRobins paid for their right to these commission income streams they were always going to challenge any move that would diminish the value of their newly acquired portfolio.