Several adviser networks have admitted that while there are ways to make it easier, the current system for novating clients is unlikely to be subject to any fresh regulatory scrutiny.
Last month, the boss of network Pi Financial defended the way he handles novation, in response to exiting advisers criticising his methods, arguing that no-one has the divine right to a client.
The firm’s managing director Tim Sutcliffe cited regulatory requirements when pointing out that “it is just not possible to do block moves, they have all got to be recorded”, in response to an unnamed adviser who complained about not being able to block novate his clients, despite previous assurances that this would be possible.
“I’ve got 4,000 clients which I’ve had to write to individually, which has been a costly and time consuming experience,” they told FTAdviser.
Tim Newman, managing director at Sense, stated that the firm providing the ongoing service to the customer is the one that should be paid the ongoing fees, adding that he struggles to see how it can be any other way.
“If a member firm leaves the network, we would always seek to migrate the client relationships with them to ensure continuity of service from the adviser.”
He explained that novations are at agency level and require that the client is informed of the transfer.
These days, where a contract for services is in place between the firm and the end client, bulk migrations require individual client consent, and that is where the same ongoing service is being offered at the same price.
“Any change in pricing or service basically means the old contract should be ended and a new one started.
“It’s certainly more complicated, which means any migrations need to be managed openly and properly between the parties, not least to make sure the customer is clear on what’s happening.”
Mr Newman added that the regulator simply wants to see that the contracted service is actually being delivered to an informed customer, rather than getting involved in how the logistics of how bulk migrations work.
Mike O’Brien, managing director of the TenetConnect and TenetSelect, agreed that it is unfortunately just a labour intensive exercise for all parties concerned, so while a ‘letter of authority’ on a customer-by-customer basis is the cleanest answer, it is also the most costly to implement.
“In our experience it is in the minority of cases with bulk novations the norm.”
He pointed out that a network’s agreement to novate is usually contingent upon the firm satisfying exit requirements, so no standard form would overcome this issue and most novation forms are in pretty standard language anyway.
“Where an individual adviser leaves a firm, the ‘hold up’ is usually over a dispute about who owns those particular customers and any non-compete or non-solicitation clauses, so it is important that the respective agreement is clearly documented in a contract at outset.”
peter.walker@ft.com
