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‘If a business is looking to build itself on the basis that it can cage its workers and clients, then it is probably time for a period of introspection’

Restrictive covenants in financial services are almost certain to raise the temperature when discussed and any argument is often guided by the perceived interests of the parties involved. The legal position is clear and they can and will be enforced by the courts but that does not mean they are good for clients or businesses.

There is a philosophical element to the debate and points of view are nearly always dictated by the starting point – the client or the business.

For Raymond James, this is squarely with the client and accompanied by a belief that if you look after your clients they will look after you.

Raymond James is relatively ambivalent towards covenants that are client-neutral, but comprehensively opposed to those that restrict or potentially restrict client freedom of choice.

The most obvious covenant that has the potential to affect clients is that of non-dealing.Where it exists, it can have the effect of preventing a client from having a working relationship with their professional of choice.

Aside from the fact that Raymond James believes this is fundamentally at odds with any concept of treating customers fairly, it is difficult to understand how any firm could view this as a legitimate way to promote and run its business.

It is a fact of life that many clients build relationships with the professional they deal with and, for a myriad of reasons, want to continue that relationship when the professional moves on.

It is difficult to understand how telling that client they cannot deal with who they want will either retain that client other than in the short term or encourage that client to be an ambassador for that business. The opposite will almost certainly be true – loss of the client anyway and a bad word for anyone prepared to listen.

Mark de Ste Croix, head of compliance and legal at Raymond James Investment Services, says firms need to have quality services that make it difficult for clients to leave

If a business is looking to build itself on the basis that it can cage its workers and clients, then it is probably time for a period of introspection.Client power is more important today than it has ever been and the RDR is a fundamental recognition of this. Clients are in the driving seat, they pay the bills and they are in control.

There has been talk recently about some form of voluntary broker protocol, as exists in the US, that provides for the orderly transition of clients from one firm to another when an adviser leaves. The whole concept is borne out of one single starting point, the rights and freedoms of the client.

Perhaps it is not surprising that this concept is also endorsed by the US regulator which has effectively banned the use of non-dealing covenants because they clash with this starting point.

We are a bit behind in our thinking in the UK but we have an opportunity to catch up quickly, do the right thing (rather than hide behind what can be done legally) and build businesses with foundations built on quality services that are difficult to leave.


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