BOLR rights ‘not a sure thing’
Buyer of last resort (BOLR) rights do not guarantee an exit strategy and there has been a definite shift in attitude from dealer groups and licensees when it comes to honouring them, according to The Fold Legal.
The law firm’s senior associate, Katie Johnston, said in an analysis that this attitude shift could delay the exit process or have changes in the agreed valuation approach for their client book for the adviser.
Johntson said the BOLR process might not be what advisers expect especially if the agreement had been amended over the years or was poorly drafted from the beginning.
“In either case, the contract terms for the BOLR may be subject to interpretation. There could be scope for the licensee to argue it is optional rather than mandatory, or the value you thought you were entitled to is less,” she said.
Johnston said advisers needed to plan ahead as despite being contractually bound, dealer groups and licensees were not always willing to follow BOLR timeframes. She said that a BOLR exit plan should take about three to five years to implement.
She said advisers first needed to get their house in order as some licensees added hurdles to exit such as additional compliance reviews and audits.
“They are looking at a far broader range of issues (following the Royal Commission) and particular areas of focus for them include quality of advice, fees, FDS/opt in compliance, and risk profiles/fact finds in addition to SoAs [statements of advice] and RoAs [records of advice],”
“They are also looking at many more client files and where there are breaches/non-compliance, they are seeking to have the adviser remediate those issues before they will proceed with the purchase.”
Johnston noted that licensees were also focusing on where they could manoeuvre away from the agreed valuation – reducing it to take account of compliance issues and recoverability of recurring fees.
“Review your fee for service arrangements and ensure that they are appropriate and allow you to future-proof for regulatory changes like the ban on grandfathered remuneration and life insurance commissions,” she said.
Johnston said the second thing advisers needed to do was to know their rights and be aware of any limitations. She said advisers could get legal advice on:
- How their book would be valued;
- What their options were;
- What the timeframes in the BOLR process were; and
- What ‘notice’ must be given to commence the BOLR process.
Recommended for you
Insignia Financial has announced a board director will be stepping down next year after almost a decade amid a board refresh.
Zenith Investment Partners has appointed a Brisbane-based business development manager, who previously led Fitzpatrick Private Wealth Partners as a director and senior adviser.
Praemium has said it is open to investing in artificial intelligence “in a big way” as it believes it can transform the business and details how it is already being used by the firm.
Sequoia has shared its strategic initiatives for FY25, including organically increasing its licensee market share and restructuring its specialist investment arm.
