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Tisa covenants debate: Fisher says some advisers do not realise legal commitments

Wherever there is an intangible service, such as financial services and the legal or consulting profession, there is a much higher propensity of restrictive employment covenants.

These are designed to protect employees, employers and clients and they are universally present in all such service industries. A significant point is that employees and employers should always read and understand their contracts, make sure they adhere to them and that clients should not be disadvantaged in any way as a result of them.

Having worked in the wealth advice industry for over 20 years, I have found that many people unwittingly do things which they are legally not entitled to do as a result of their employment contract. Once you point this out to them, they usually stop. The reason they make this mistake is very often because they have not read or remembered their employment contract.

The service industry is nothing if it cannot protect its client data or the client base it has developed. There is a danger that when advisers leave a firm, they do not recognise the importance of the legal commitments they made via their contracts. It is, of course, of equal importance that companies recognise the commitments that they made via the same contract. The contract protects all parties, including the client.

Towry chief executive Andrew Fisher says client information should be protected at all times

Client information should be protected at all times. Firms need to have formal and professional terms of employment to make sure that the people working for them do what is in the best interest of their firm’s clients and that the employee is employed on a fair and reasonable basis.

In our business, we spend millions of pounds on training people, developing appropriate client propositions and investing in systems and infrastructure. All this results in client advice which is created and delivered by the firm and not by an individual. Our employees are highly qualified professionals remunerated through a salary which makes up over 90 per cent of their total compensation. At Towry, our advice is developed and prepared by a team of people, with our advisers being responsible for ensuring that it is tailored and suitable for our clients and delivered appropriately.

One of the lessons we have learnt is that non-solicitation is difficult to prove. Non-dealing contracts are better because it is simpler to define what you can and cannot do which is why we have included non-dealing clauses in all Towry employment contracts for many years. This is, of course, particularly relevant to our holistic approach to financial advice.

If we agreed that when an adviser resigned they could ignore the terms of their employment contract, then clients could be misled into believing that the advice that they had historically received was the individual’s and not the firm’s. This is likely to result in detriment to the client and act as a disincentive for any business to continue to invest.

If, however, a firm’s business model was similar to the major US broking houses or the UK platforms and networks, whereby the individual is a sole trader offering his own advice and remunerated on a transactional basis, then it would be perfectly reasonable for some form of industry protocol for adviser transfers to be developed as, to a large extent, the adviser is self-employed. Under these circumstances, it is unclear why any restrictive covenants, other than those pertaining to data protection, would be appropriate.

Non-dealing clauses may constrain the client from dealing with an individual adviser for a year but this needs to be seen in the context that the adviser could not continue to advise the client in the same way as has previously occurred, given the nature of our business model. However, clients may, of course, deal with any other individual across all wealth advice businesses.

Litigation is the last thing you want. The preferred option for all parties, except for lawyers, is for the breach not to occur in the first place or, if it does, for the parties to reach an amicable settlement early in the process. Above all, it is important that clients always get what they need – professional financial advice.


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