Contractual non-solicitation and non-dealing clauses have been big news in recent years, with the rise in the more restrictive latter provision now being cited as a cause of concern for advisers and, more pertinently, their clients.
A recent conversation with a financial adviser on his own experience - which ultimately ended well for him but left most clients ignored for a full year - only proves to me that these clauses, which treat clients as commodities, have no place in the world of advice.
FTAdviser sister publication Financial Adviser reported earlier in the summer on comments from one firm which survived a legal battle on this front, claiming that firms are restricting customer freedom of choice by using contractual non-dealing clauses.
Mark de Ste Croix, head of compliance and legal for Raymond James Investment Services, bemoaned the rise in the use of contractual NDCs in the UK, citing the example of the US, Canada and other countries, where such clauses are not allowed.
Following the publication of this article, a financial adviser I cannot name for legal reasons called me to relay his experience. He also had a non-dealing clause and in his view clients suffered greatly because of it.
The adviser said he was hoping to leave his previous firm amicably, but as soon as he handed in his notice he was escorted from the building and stripped of his phone to prevent him contacting clients.
“I was treated like a criminal for handing in my notice... A few hours later, I was delivered a letter from a lawyer accusing me of all sorts.”
His former employer, which also cannot be named, contacted all his clients and informed them the adviser had left the firm and that it would be now looking after them. The only problem was, in the event, many weren’t in fact looked after.
According to the adviser, some of his clients did not get any service from the firm over the 12 months that he could not see them.
He believes the firm segmented his client bank into categories depending on their potential value: with some not contacted or only dealt with on a reactive basis, while others were dealt with more proactively.
After he contacted his clients following the expiry of the 12-month clause, a number of them queried why they had been charged an adviser fee for the previous year when they had not had any service. In the end 95 per cent moved their business back with him.
Now obviously this might be an exception, and clearly not all clients were ignored, but it still shows the ugly side of these clauses in gifting the full control to the firm, not the client. The fact that the vast majority decided to follow the adviser tells you everything you need to know.
