Private matters

The Privacy Act, according to The Argyle Partnership’s Peter Bobbin, and Lisa Chambers is designed “to protect the privacy of individuals and to regulate how organisations use private information both internally and in dealings with third parties”.

When an adviser, as a representative of a dealer group, collects confidential data, the dealer group becomes the custodian of the data. The dealer is then bound by law to ensure that the data remains private and is only used for the purpose for which it was collected unless the client otherwise consents.

It’s all fairly straightforward, except when an adviser changes dealer groups.

In a perfect world, the dealer and the adviser would have a contractual agreement setting out exactly how the clients would be handled in such an event and how their privacy would be protected.

Even in the absence of a formal contract, the dealer and the adviser might reach an amicable agreement. They might, says the Australian Securities and Investment Commission’s (ASIC) Pauline Vamos, write a joint letter to clients explaining the situation and offering the client the choice of remaining with the dealer group or moving with the adviser to the new dealer group.

At that stage, the clients would indicate which way they preferred to go and, if they decided to go with the adviser, could authorise the old group to hand over their client files to the adviser at the new dealer group.

But the financial services industry in Australia is far from a perfect world and Vamos says that a lot of advisers are complaining that dealers are misusing privacy as a way of stopping them from transferring clients when they change dealer groups.

Bobbin says that as the custodian of the information, the dealer group is within its rights to demand the return of confidential information including client files and contact lists. Furthermore, the dealer group has a legal responsibility to protect the privacy of those clients.

“If there is nothing in the communication between a client and a dealer group or a client and an adviser about passing confidential information from one dealer group to another, then a dealer cannot legally do it without first obtaining the consent of the client,” says Bobbin.

It’s a different story altogether, of course, if the client gives permission — the adviser is then free to use the client’s information.

However, as the custodian of the information, the dealer is not obliged to hand it over. Where a dealer is instructed by a client to provide access to their information to an adviser, that dealer may charge the reasonable costs of providing access to that information.

Which all sounds like pretty bad news for the adviser.

The good news is that the Privacy Act, in and of itself, does not prohibit exiting advisers from contacting their clients using other sources of information.

“There is nothing to stop the adviser from using other sources such as the phone directory to contact clients,” says Bobbin. “And the adviser will probably know the numbers of the best clients off by heart. He can call those clients and if they give him their authority he can service them.”

Vamos believes it may be in the clients’ best interests to move with advisers.

“One of the things we’re concerned about is inappropriate selling. If an adviser leaves a dealer group and a new adviser is allocated clients, that [new] adviser wants to earn money from those clients.

“In order to earn money they might put those clients with other fund managers — now sometimes it’s legitimate, sometimes not. That’s why I believe some dealers should allow advisers to take their clients with them if the clients consent — because the likelihood of that happening is lessened.”

More good news for advisers is that while the dealer group might own client data, it does not own the client relationship.

“Advisers own the relationship with the client,” Vamos says. “If you are the one who sees clients on a day-to-day basis [and] you go to another dealer group, the client is highly likely to follow you, no matter how many bells and whistles the [original] dealer group tries to put on the arrangement it has with you.”

That said, she says that most advisers think they are automatically entitled to their clients and they are not.

“There are issues on both sides. Dealer groups have spent a lot of time and money putting in infrastructure to make it all work — part of that is split in commission. At the bottom of all this is what’s in the best interests of the clients,” she says.

The Privacy Act is about protecting the privacy of the client — it is not about protecting the business interests of either the dealer or the adviser.

Vamos says what happens to clients when an adviser moves from one dealer group to another needs to be decided upfront.

“The impact of privacy on the ongoing and termination of the relationship between adviser and dealer needs to be included in the agreement upfront to avoid any further issues arising down the track.”