Make sure you assert your rights when it comes to your BOLR and are aware of any limitations.
The challenges for AMP advisers with their buyer of last resort arrangements (BOLRs) has dominated the headlines. Many other advisers have BOLR arrangements with their dealer groups/licensees and while many of them have not yet refused to honour them, there is a definite shift in attitude. For some advisers this will mean a delayed exit process and for others, changes from the agreed valuation approach for their client book.
If you are thinking about exercising your BOLR, there are some things you should be aware of.
BOLR rights are not a guaranteed exit strategy
BOLR arrangements should not be confused with first right of refusal arrangements. A BOLR requires the dealer group/licensee to buy the client book if the adviser cannot otherwise find a buyer. The purchase is compulsory. Whereas, a first right of refusal is where the dealer group/licensee is not compelled to purchase the client book, but before the adviser can sell the client book to someone else, they have to first offer it to the dealer group/licensee. If they decline to buy, the adviser can sell the client book elsewhere. If they elect to buy the client book, the adviser has to sell their book to them.
The BOLR process may not be what you expect, particularly if your adviser/AR agreement was drafted some time ago. This is because the agreement may have been amended over the years or poorly drafted initially.
In either case, the contract terms for the BOLR may be subject to interpretation. There could be scope for the licensee to argue it is optional rather than mandatory, or the value you thought you were entitled to is less.
You need to plan ahead
Some dealer groups/licensees are now “going slow” on BOLRs for a range of reasons. Despite being contractually bound, they are not always willing to follow the BOLR timeframes.
If you are planning to retire and the BOLR will be your succession plan, don’t leave your preparation/planning to the last minute. BOLR transactions are taking more time to complete. Most good succession plans take about 3 to 5 years to implement – treat your BOLR exit the same way.
As part of your planning there are two things you should do:
1. Get your house in order
We’ve seen licensees add hurdles to exit, like additional compliance reviews and audits.
Just because you had regular compliance audits and passed those audits in the past, don’t expect the process to be the same. The dealer group/licensee is effectively conducting due diligence for a BOLR transaction. They are looking at a far broader range of issues (following the Royal Commission) and particular areas of focus for them include quality of advice, fees, FDS/opt in compliance, and risk profiles/fact finds in addition to SoAs and RoAs.
They are also looking at many more client files and where there are breaches/non-compliance, they are seeking to have the adviser remediate those issues before they will proceed with the purchase. Undoubtedly, they are also focusing on where they can manoeuvre away from the agreed valuation – effectively, reducing it to take account of compliance issues and recoverability of recurring fees.
To avoid this delaying your exit, don’t give your licensee any excuse to delay your exit (or withhold remuneration). Make sure your files are in order and compliant with current regulatory and market expectations before you start the process.
Review your fee for service arrangements and ensure that they are appropriate and allow you to future-proof for regulatory changes like the ban on grandfathered remuneration and life insurance commissions. Have a strategy for how you will deal with these changes, understanding what the impact of those changes are for your advice business.
2. Know your rights
Make sure you assert your rights when it comes to your BOLR and are aware of any limitations. If you need to, get legal advice in advance about:
- How your book will be valued. The BOLR may have a set process or the value may be determined by an independent third party. Either way, know your rights so you can maximise your value.
- What your options are. While it’s a buyer’s market (and will be for a long time), you may be able to negotiate a better deal for yourself on the open market rather than relying on the BOLR. So check whether you’re restricted from shopping your book around. If you aren’t restricted then the best way to maximise your price is by having your book in good order and making it part of a competitive tender process.
- What the timeframes in the BOLR process are. Once you’ve confirmed these, diarise them and don’t miss any actions or give your licensee any excuse to refuse or delay the process.
- What ‘notice’ must be given to commence the BOLR process. For example, older agreements may require delivery by post or facsimile only. This means if you email, your notice won’t be effective.
By Katie Johnston