CompaniesJul 24 2015

Network hits back at claims it hoards clients

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Network hits back at claims it hoards clients

Pi Financial’s boss has said no-one has the divine right to a client, after exiting advisers slammed the way his business handles novation.

The firm’s managing director Tim Sutcliffe has defended his approach to transferring the clients of advisers who have left his network, citing regulatory requirements and stating “it is just not possible to do block moves, they have all got to be recorded”.

His comments came after Harriet MacKenzie-William, now managing director at Keystone Financial and former compliance officer at Pi Financial, said a Pi Financial adviser was trying to join her firm, but was having trouble getting their clients block transferred across.

Novation is a tripartite agreement between the network, adviser and the product provider, where the adviser agrees to take on all liability for that agency and therefore the network can release the commission, knowing that any potential clawback will be an issue for the adviser and not for the network.

This is not the first time Ms MacKenzie-Williams has complained about novation at Pi Financial.

As FTAdviser reported back in 2010, she disputed the viability of her previous employer’s commission strategy for advisers who leave.

When she left, taking 34 of her clients, Mr Sutcliffe lodged a complaint which led to her arrest on suspicion for theft of company data. She was bailed for two months, but no charges were brought and her bail was cancelled.

Ms MacKenzie-Williams said Pi Financial does not fall in with standard industry practice for allowing advisers to easily block novate their clients away, rather than having to work through client banks one by one.

“Basically, Pi Financial are happy to novate client banks in to the firm when an adviser joins, but will not novate them out when one wants to leave. The norm within the industry is that clients are novated with an adviser - unless the adviser was employed and the clients are clients of the firm clearly - from network to network.

“By denying an adviser the right to novate his/her client bank with them when they leave, they are to all intents in purposes, holding them to ransom.”

She said in her view one reason Pi may be reticent to let advisers and its clients leave is to keep that income on his books, boosting its turnover numbers to make the business more attractive to sell.

When FTAdviser put this claim to Mr Sutcliffe he said it was “rubbish.”

Another adviser, who wished not to be named as they are still getting some trail commission and ongoing fees paid from Pi Financial, said: “When I left I was told at that stage I’d be able to novate clients, but since I moved, Tim said he wasn’t happy to do it on a block basis and that it had to be done individually.

“I’ve got 4,000 clients which I’ve had to write to individually, which has been a costly and time consuming experience.”

Mr Sutcliffe called the suggestion that Pi Financial was hoarding clients to boost turnover “absolute rubbish” and argued that one of the good things about the RDR was that it made clear that no-one has the divine right to a client, adding that the regulator requires individual consent.

“We’re not in the game of retaining clients for the sake of it, we actually have very few advisers leaving. It is just not possible to do block moves, they have all got to be recorded.

“Having been burnt with Harriet we feel it is just not worth taking the risk.”

The Financial Conduct Authority’s position is that it will not stop block transfers, but written agreements are required from each client.

David Carrington, sales and marketing director at Personal Touch Financial Services, said that one of the challenges for advisers is the lack of consistency.

“We have always taken the view that the adviser owns the client and can, therefore, take them with them when the move and so novation is relatively clean.

“I know others take a different view (querying what is industry practice) and leaving is also made more complicated by other factors, such as long notice periods that make a change an economic challenge.”

Mike O’Brien, managing director of the TenetConnect and TenetSelect networks, explained that novation is industry practice, but the difficulty in moving is usually where the firm does not co-operate with the existing network, for instance when they fail to return the customer files without which the network cannot defend a claim, or there is some outstanding debt/claim.

Matt Timmins, joint managing director at SimplyBiz, previously told FTAdviser that although it is “common practice” for networks to hold on to commission to cover any potential clawbacks for when members leave that network, this is in tandem with a novation agreement.

peter.walker@ft.com