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Simon Collins: Managing conflict with your firm

Scenario: “Protecting your Reputation”

At a forthcoming board meeting your co directors will be discussing the results of the latest management information and board pack and in particular the results from your business review function.

As a growing wealth management practice that has benefitted from the introduction of a new acquisition at the end of last year, you have recently arrived as the new CEO and have oversight responsibility for the integration of the acquisition into the established business.

This process has been going reasonably well although you have noticed a few cultural issues which one of your NEDs has noted as well around business practices.

Two of the most senior people within the acquired firm now sit on the board as well and you have decided that it is time to tackle one of the cultural issues based on the MI you have been provided with.

In addition you are revisiting the due diligence undertaken by an external consultancy and professional services firm to verify if any of the issues you wish to tackle were raised.

The critical issue is that your compliance director’s draft report summarising the file reviews undertaken highlight that commission payments have been received for the arrangement of protection business for a number of the clients of the acquired firm.

The advisers have been undertaking a full review for their clients encompassing both their portfolios and their financial planning requirements. With these reviews whilst part of the work was remunerated by a fee (adviser charge) your firm has now received a significant commission payment for the protection business that was arranged as well and this is causing you some concerns.

You have arranged a meeting with your compliance director and the NED ahead of the board meeting to discuss the position more fully. What points would you wish to raise and consider with the compliance director and NED?

Points to consider

How did the adviser charging working party of the acquired firm arrive at its rationale and was this reviewed as part of the due diligence?

How have the elements of the service been costed out and does the payment of commission equate to the charge that would be levied for the protection element of the case?

Is there a justifiable concern of cross subsidisation and is there a need to look at all cases where commission has been received in addition to the adviser charge?

What is the likely revenue per annum and does this represent a risk to the business in the event of the business going off the books and “clawback” being suffered. If commission does continue to be taken should this be on a non-indemnified basis instead?

What has been the nature of client communication around the issue of adviser charging for investment business and commission on protection?

What guidance has been issued out as a whole to the firm’s advisers around this issue and how does that guidance fit with the firm’s TCF approach?

Regardless of whether this approach in terms of receipt of commission is technically acceptable and all disclosures have been made correctly how comfortable with the situation are you and is this approach consistent with your normal practice?

This article has only briefly skimmed the surface of a sensitive area but seeks to raise the type of issues that a firm might consider in this situation, for further discussion please contact Simon Collins managing director of RGP Compliance


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