Ask any financial adviser what notice period their product providers have in place for agency agreements and I’m pretty sure not many would say “no notice period”.
To have a notice period in any agreement – be it a job, tenancy, or insurance product – is deemed standard practice in 2013. So you can imagine my alarm at discovering this is indeed not the case for many of the large providers.
For example, Standard Life, Sipp Centre and Aviva all have a ‘no notice required’ clause in their agency agreement terms and conditions, meaning they are in a position to terminate their contract with a financial adviser at the drop of a hat.
This worrying trend prompted me to carry out further inspection, from which I discovered that Nucleus and Transact do not state a notice period – leading me to assume no notice is required – while Fidelity operates with just 28 days and Skandia 30 days. Only Axa Elevate and Ascentric specify three months notice.
The scandals, mistrust and confusion which has marred the financial services industry rightly prompted the regulator to pledge its commitment to increasing transparency and fairness across the market. However, in its drive to protect the consumer and restore trust in the sector, certain other aspects have been overlooked.
At present the power lies with the large product providers but greater protection is needed for financial advisers to ensure their clients’ interests are safe guarded.
What is there to stop providers deciding they would rather not work with certain financial advisers and terminating the contract from one day to the next?
Large providers have huge financial commitments to financial advisers, often having to fork out substantial sums of money in ongoing commission and fees. At a time when the industry is forced to keep a close eye on balance sheets, I suspect we will see a move among providers to cut costs. Regular premium renewal and trail commission have already been thrust into the spotlight, with many providers willing to switch off these commissions where they feel the adviser has not provided adequate service to the client to justify this payment and I fear it could go one step further.
There is nothing contractually to prevent providers from taking matters into their own hands and deciding to work directly with the client, thereby cutting out the financial adviser as the middle man. This kind of strategy could be resisted with respect to those client/adviser relationships that are strong but not where the adviser has had little contact with the person for some time.
While I imagine providers would be reluctant to cut ties with the larger, more influential financial advisers, they may not have such qualms when it comes to the much smaller operators who they may well deem as too much of a hassle and an administrative headache to bother with. Already, providers are engaged in telesales operations to discover the level of adviser contact in order to determine whether ongoing payments of renewal commission should be stopped.
It is undoubtedly worrying for very small financial advisers knowing they are at the mercy of the providers who are in the envious position of being able to pick and choose who they wish to work with.
If a provider were to choose to terminate the agreement with no notice given, advisers would seriously struggle to service their clients and ultimately, it would be the consumer who suffers, going against the very principles of Treating Customers Fairly.
I would urge advisers to look at their notice periods as they need to be aware of what could happen and put provisions in place in the event an agreement is terminated.
Sheriar Bradbury is managing director of Bradbury Hamilton