Advisory firms are restricting customer freedom of choice over who they want as their adviser by using contractual non-dealing clauses, Mark de Ste Croix has claimed.
The head of compliance and legal for Raymond James Investment Services, said that the use of contractual NDCs had been rising in the UK, compared to the US, where such clauses are not allowed as the consumer has the right to choose.
He said: “Our own court case highlighted the fact that certain types of restrictive covenant weren’t really sufficient and that non-dealing was pretty unequivocal.
“The inclusion of contractual NDCs, as opposed to the harder-to-prove non-solicitation, has increased.
“Meanwhile advisers can now be subject to more restrictions when they leave their current firm. Yet the client barely comes into the equation.”
Mr de Ste Croix referred to a case, brought in 2011, in which Raymond James Investment Services successfully defended itself in court against allegations from national wealth manager Towry that Raymond James Investment Services had broken employment covenants and solicited clients.
In February 2012, a High Court judge dismissed all charges brought by Towry over alleged client solicitation and, in June that year, Towry was ordered to pay Raymond James Investment Services’ full legal costs of £1.2m.
Mr de Ste Croix said: “In the Towry case a number of clients gave evidence and it was clear they wanted to choose who they dealt with. To suggest otherwise would be a restriction to which they never agreed. Assuming the client comes first, where does that leave non-dealing restrictions?
“It is also counter-productive for the firm. We have had a couple of cases recently where the client was livid about the situation.”
Cynthia Poole, director of relationship management and business support for Raymond James Investment Services, said: “If, as a client, you have worked with a financial adviser for 15 years and worked out a plan for your retirement, you trust them and they know everything about your financial affairs. You wouldn’t want to change.”
Philip Cameron, barrister for law firm RPC, argued that firms needed to be “sensible” when working with non-dealing clauses. He said: “If a firm is hiring an employee with an NDC, I try to get the employee to speak to the old employer about getting around the clause.
“I think clients understand that people in financial services are subject to restrictions. If an adviser moves across to a new firm, the client will be looked after by someone else. There can be some frustration on the part of the client. The client just hears that Mr X is going to a new place so they want to transfer the business.”
He said he thought non-solicitation clauses were a “better bet” for employers, because “they are much more targeted”.
Regulatory view
When asked if NDCs could be restricting consumer choice, a spokesman for FCA declined to comment, saying it was an employment issue rather than a regulation issue.
Adviser view
Kevin Hever, financial adviser for Wolverhampton-based Cornerstone Financial, said: “I have suffered from this in the past myself.
“Obviously if the employer is providing leads, they are not going to be that happy. They have got to protect themselves so that the advisers won’t just disappear.
“People do deal with the same advisers for a long time, and if that changes they will be frustrated. And if an employee is bringing clients to the firm, then they should be able to take them with them.”
