Adviser firms refusing to allow the "en bloc" transfer of clients when an IFA joins the company may be in breach of treating customers fairly (TCF) principles and are likely to struggle in a post-RDR world.
National adviser 2plan Wealth Management is calling on the FSA to step up its regulation of ‘novation’, arguing some of the bigger, acquisitive firms do not allow the practice out of greed for commissions and recurring income streams.
An adviser leaving one firm to join another should be able to offer their clients a “seamless” transition, it adds, with ongoing service and minimal disruption.
“Those that do not [allow novation] are causing many smaller advisers, and their clients, real headaches, not to mention serious delays in accessing information which ultimately means it is the client who loses out and is not treated fairly,” says 2plan chief executive Chris Smallwood.
“In some cases this is clearly being done simply for the reason that these big firms want to hang on to assets for their own commercial purposes – which just isn’t in the spirit of the industry.”
Smallwood says while no formal regulation of novation currently exists for advisers, the FSA has previously shown support for novation in the banking sector.
In its 2001 Interim Prudential Sourcebook, it states: “In the FSA’s view, the cleanest transfer of risk is achieved by novation.”
He says clients benefit from en-bloc transfers as they do not need to sign new agreements and don’t lose their adviser, with whom they may have probably formed a long-term relationship.
“What we will see, I believe, emerge from the RDR is that IFAs will need to start to prove they are looking after their clients and prove they are doing what they say they will do to warrant the continued payment of recurring income streams,” he says.
“There is somewhat of a twist on this, however, as clients at a national IFA or network are deemed to belong to the firm. Firms [not allowing novation] fly in the face of TCF.”
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