Legal disputes over poaching clients demonstrate the need for “mutual understanding” between advisers and firms, Chris Hannant has said.
The director general of the Association of Professional Financial Advisers was speaking after a case against a group of advisers in the High Court was dropped.
Five advisers had been taken to court by Affinity Financial Awareness over a clause in their contract preventing them from soliciting business from the company’s clients.
Affinity, which was bought by Wealth at Work earlier this year, dropped its case against three of the advisers yesterday (24 November) after the judge ruled against it for two of them.
Mr Hannant said: “In this industry, as in many others like lawyers, when it is based on a personal relationship and the individual has invested much in looking after the client, as has the firm, both are entitled to be treated reasonably.
“Some firms are explicitly setting themselves up to be the business providing the client with services while others are a collection of individuals who share services.
“Problems arise when there is no mutuality of understanding and clarity through the contract at the beginning.”
He said it was unfair if a contract was so broad it effectively prevented an adviser from working after leaving the firm but he also said firms shouldn't be "held to ransom" by advisers threatening to leave with all their clients.
Keith Richards, chief executive of the Personal Finance Society, said there was a need for “maturity” in this issue.
He said: “In 2014, the PFS and the Tax Incentivised Savings Association joined forces to develop a protocol designed to provide clarity surrounding the treatment of client relationships between a firm and individual advisers.
“At its heart was the message that all parties involved should act in the best interests of the client rather than risk fighting out contract covenants in court.
“Non-solicitation, restrictive covenants and clauses of the type have very limited application when advisers decide to leave a firm, and in many cases they fail to consider the best interests of the clients affected.
“To help avoid bitter legal disputes around ‘client ownership’, we would recommend a common sense and mature approach whereby the client’s best interests are protected through continuous and transparent communication prior to and following the break-up of a firm.
“Ultimately, clients should have the right to choose which adviser they continue to engage and have a relationship with, and firms should support their clients’ decisions accordingly.”
Under their contract the Affinity advisers could not, within a year of the agreement being terminated, solicit or canvass the custom of the firm’s clients or any potential clients.
Affinity alleged the advisers broke these restrictions by approaching the company's clients.
Nor could they employ, offer to employ or enter into partnership with one of the company’s “restricted representatives”.
While five advisers were taken to court by Affinity, a further 22 were affected by the restrictions.
In ruling against Affinity in the case of two of the advisers, the judge said the clause was so broad it was effectively unenforceable.
damian.fantato@ft.com
