Confusion over trail book revenue
A Melbourne-based financial adviser has hit a hurdle in his purchase of a large book of clients, with two of the fund managers involved in the purchase requesting confirmation of client approval before they will transfer trailing commissions over to the adviser.
The adviser, who did not wish to be named, has been involved in several trail books sales in the past. He made the most recent acquisition shortly before switching licensees - although the new dealer group is owned by the same institutional owner as the previous licensee.
He purchased the book for $650,000, and although the majority of clients were largely invested in a platform which has transferred revenue over, some of the money is tied up in Macquarie Structured Products as well as Synergy personal choice super and investments.
Both Macquarie Funds Group and Synergy requested assurances that all clients involved in the book had approved the transfer, but the adviser says that with many of the products in the book sold as much as 20 years ago, many of the clients will be uncontactable.
He added that he purchased the revenue legitimately and should not be obliged to contact clients individually.
Macquarie said it would accept signed confirmation from either the adviser or the prior dealer group that all clients approved of the transfer.
Macquarie Specialist Investments executive director Peter van der Westhuyzen could not comment on the specific example.
However, he said in general, client approval would usually be required for a transfer to a new adviser, although there might be exceptions, such as where a licensee approved the transfer.
"Because there are so many different arrangements in place in the market, the key point comes back to that in the absence of anything specific, we would want the individual client to provide us with the transfer instruction," he said.
Macquarie would always try and find a balance between fulfilling its legal obligations and making it an efficient administrative process for all involved, he added.
Synergy cited Privacy Act concerns as the reason for the assurance that clients had been contacted, and indicated it would contact the impacted clients directly.
Head of Synergy Operations Christine Jones said she couldn't comment on specific cases but in this type of scenario, rather than seeking individual client approval Synergy Capital Management would seek confirmation from the adviser that he had informed the clients.
"The challenge here is to strike a balance between making the transaction easy for the adviser while ensuring the clients remain fully informed throughout the process," she said.
Gold Seal director Claire Wivell-Plater said she was unsure of the legal ramifications of the request, and whether the fund managers were legally able to refuse to transfer the revenue over to the adviser if that adviser had the appropriate releases from the previous licensee.
However, she said it is not a usual arrangement in this type of transaction. "It's certainly flying in the face of current industry practice," she said.
With hundreds of similar transactions still being completed in the industry, if client consent was required in order to reassign trail commissions, it could have major implications for future sales, she added.
The adviser said that if the situation involved the major platform with 450 of the clients in the book generating around $25,000 per month in revenue, then he would be under pressure to make his bank repayments and meet his financial commitments.
"Surely they can't retain the commissions where I've purchased the income stream and I'm not changing the funds or investment options?" he asked. "And if so we should know that before we buy practices."
Jones said Synergy is unable to retain commissions payable to advisers through the platform and would have had to dial the commission levels down to zero if there revenue were not switched.
Money Management understands that both Synergy and Macquarie have now transferred the book revenue over to the new adviser without a declaration stating that all clients had been contacted.
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