“[It’s] a life-changing choice, so advisers need to spend a lot of time researching the right partner ”
— Paul Cullen “Think Twice before switching Licensees: Centrepoint”, ifa 20 October 2020
Break-ups are seldom easy, and never painless.
We get it, you thought your Licensee was the one and that you’d be together forever.
Maybe you just grew apart. Maybe you just wanted different things.
Maybe they were just too controlling, too greedy and too self-interested to make it work long-term.
Maybe it was you.
To be honest, it really doesn’t matter why you’re no longer with your old licensee.
If you’re going to be successful, you’ve got to escape the post-breakup rut and ditch your nostalgic commitment to how they did things.
In fact, it’s the perfect time to look at processes with fresh eyes, to move on and take the chance to do things differently (and better).
Check your pre-nup
Most people don’t go into relationships expecting that they’ll fail, and fewer still anticipate the inevitable failure clearly enough to require a pre-nup.
Licensees are different.
Before you break-up with your Licensee, take the time to read the Authorised Representative Agreement (“ARA”) you giddily signed at the start of your relationship.
In particular, look closely at those clauses that you were initially assured wouldn’t really apply to you; specifically, those sections addressing termination, ongoing obligations, remuneration, access and liabilities.
For example, your Agreement might contain a provision like:
Upon termination of this Agreement, with or without cause, the Authorisation is automatically revoked and the Representative must:
- immediately pay to the Licensee all moneys owing to the Licensee;
- immediately return the Authorisation to the Licensee;
- immediately return all Confidential Information;
- provide the Licensee with full and complete copies of all relevant Client Files;
- not take any action or act in any manner that may entice any employee, agent, consultant or Representative of the Licensee (or any related bodies corporate) to terminate their employment, contract or affiliation with the Licensee; and
- no longer purport to represent or provide any Financial Services on behalf of the Licensee in any way or engage in any behaviour that may cause a person to infer that the Representative is associated with Licensee.
It seems innocuous enough, and commercially defensible, but the provisions can be interpreted in ways you might not initially have considered.
For example, your obligation to “immediately pay .. all moneys owing” can, in conjunction with an offset clause, provide your Licensee with a legal right to retain remuneration to meet the cost of anticipated claims or remuneration.
We’ve seen, for example, Licensees retaining all of a departing adviser’s remuneration in anticipation of remediation costs associated with their ‘lookback’ review.
Likewise, the obligation to provide “full and complete copies of all relevant client files” has required some advisers to digitise their files (at their cost) and, in other cases, to provide client information and records that preceded their authorisation with their Licensee.
“The Representative indemnifies the Licensee and agrees to keep the Licensee indemnified, from and against any current or anticipated Claim arising from the Representative’s acts, omissions or contraventions of this Agreement or the Relevant Laws. ”
— Standard ARA Clause
By the time you’ve decided to leave (or when your Licensee has decided it’s time for you to leave), you’ve little opportunity to revise your Agreement.
Your lawyer might disagree but, in my experience, trying to re-negotiate exit requirements is a costly, frustrating and often pointless experience.
You’re not without options (and should resist bullying, unreasonable and oppressive demands) but check the Agreement closely.
In addition, check to see whether (and on what grounds) your ex can decide not to agree to the termination of your authorisation. There are precedents for Licensees suspending, but not terminating advisers, until contraventions (or suspected contraventions) of the relevant laws are resolved or remediated.
In practice, the Licensee suspends the adviser’s authorisation (so they can’t provide advice or services) but neither terminates the authorisation nor consents to the adviser’s cross-endorsement. In effect, the adviser is stranded until the Licensee consents, or is compelled, to terminate the authorisation.
If there’s any chance that your ex is going to react to the break up by obsessively re-examining everything you did while you were together, then it’s best to know how they’ll enforce their lookback and what’s required of you.
If there’s any capacity for them to delay or prevent your departure, you need to understand whether, and how, that could work.
Likewise, if you have ongoing obligations (such as issuing a new SOA within six months or providing ongoing reporting) it’s best to know.
Denial doesn’t help. If you don’t want your ex crowding your new relationship, carefully check your Authorised Representative Agreement to confirm how (and how easily) you can move on.
- Check your ARA for clauses that state that “the Licensee may at any time” make enquiries, access your records or take any action.
- Investigate whether your ex retains the right to “disclose, use or receive any information about you”
- Confirm whether, and to what extent, the indemnities you provided survive the termination of your authorisation.
- Assess whether the remuneration clauses to see the discretion allowed to your ex in processing, or relinquishing, remuneration received by the Licensee.
je ne regrette rien
Even if you didn’t initiate the break up, don’t waste time second-guessing the decision or regretting your choices.
If you did, accept the old relationship is over and stop agonising over your decision.
As the institutional licensees fragment, and others consolidate, good advisers are being forced to move on.
We see far too many advisers in “anaysis-paralysis”, agonising over their choices, over-analysing the causes of their break-up and regretting their current circumstances.
To be clear, unless you’ve been terminated for misconduct, it generally doesn’t matter why you’re no longer with your old licensee. Don’t waste time looking for explanations and reasons. Don’t play the “why didn’t they just” game. Don’t get angry about the time you invested in the relationship.
Accept it’s over and move on.
- Update your Facebook page and LinkedIn profile to reflect your new relationship status.
- Take the time to do a comprehensive product analysis of your previous-Licensee’s ‘preferred products’ against those now available to you.
- Amend your website to refer to your old Licensee in the past tense (if at all).
Get rid of their stuff
No matter how hard you try, you won’t be able to dump or torch every reminder of your old Licensee.
If you’re break-up is amicable, you’ll immediately return their marketing material and authorisation. You’ll change your branding and promotional material.
Over time, you’ll reissue Financial Services Guides and Statements of Advice and business cards confirming your new arrangements.
Unfortunately, most advisers don’t even think about their processes, habits or arrangements.
Recently, we reviewed a new Licensee’s advice documents and questioned them about the form and content of their advice documents. In our view, they were poorly designed, ineffective, duplicative and illogical and we wanted to understand their reasoning.
They had no explanation. They’d simply rebranded their previous Licensee’s documents.
This is more common than you might realise. Even adviser who leave their Licensees out of frustration with their inconsistent and bureaucratic compliance regime, habitually mirror their approach. Instead of taking advantage of their new freedom, and questioning why things need to be done that way, they replicate their ex’s failures of imagination and courage.
They design 20 page Records of Advice. They implement 60 page Statements of Advice.
They implement compliance arrangements that an institutional licensee may require but are in no way relevant to a business of their “nature, scale and complexity”.
We see this frequently reflected in Compliance and Risk Management Arrangements that are far too complex, and far too onerous, for any but the largest licensee.
We see this too, in their advice processes. Too frequently, advisers default to their previous licensee’s requirements. They issue Statements of Advice where Records of Advice could be used or don’t even consider their new Licensee’s more flexible approach.
- Immediately archive your old document templates. You can’t ditch them entirely, but don’t make it easy to revert to their use.
- Ask your new Licensee to review your current advice processes.
- Read your new Licensee’s Compliance Manual. Sure, it might be painful but it may pay dividends in the long run.
- If you’re your new Licensee, engage someone to critically review (and ruthlessly edit) your advice documents.
- Review your processes and arrangements and check your assumptions.
If you were with your Licensee for a few years or more, then simply breaking-up isn’t enough.
You need to de-tox (or be de-programmed).
The reality is that, over the course of your relationship, you probably absorbed their values, assumptions and ways of doing things almost by osmosis. You habituated them, and, even without conscious thought you’re doing things their way.
Making a fresh start requires you to take the time to critically re-examine your priorities, processes and arrangements.
If you’re with a new Licensee, you start by understanding their expectations and by consciously avoiding the insidious tendency to reminisce about how your ex liked things done. Give your new Licensee a chance. Start with clear-eyed optimism and hard-won experience and realise your potential to provide exceptional advice.
If you’ve made the decision to become self-licensed (congratulations – rebound relationships aren’t always successful) and embrace this opportunity to make a fresh start. Purge the past. Question everything. Build better. Embed ethics. Get the help you need.
Don’t underestimate the non-financial cost of breaking up with your Licensee or the time and effort needed to get over it.
It will get better over time, but you’ll need to work hard to get over your ex.
If we can help, give us a call.
- Review your Risk Appetite. Your former Licensee may have had very different views on key issues.
- Audit your SoA template. Focus on the customer experience (emphasised by FASEA) and differentiate between law, regulatory policy, licensee policy and habit.
- If you’re not with a vertically integrated institutional licensee, review your compliance framework for clarity and engagement.
- Rework and reposition your manual. Customise it to your business and explain, don’t restate, the law.
- Engage people that are willing to understand your business, compliance arrangements and risk appetite.