“Advisers are being widely courted by licensees offering them, in many cases, huge incentives to join,” says Synchron Director, Don Trapnell. “It’s all very well to accept a nice dowry when you sign on to a dealer group but watch the pre-nup for the conditions that apply should you ever want a divorce. Also be careful on your anniversary because renewal agreements may contain the clause.”

Mr Trapnell says the practice of charging advisers run-off cover premiums is disgraceful. “We obviously have PI cover and we do not receive a bill for run-off cover,” he says. “If licensees are not charged for it, how dare they demand it from their exiting advisers?”

According to Mr Trapnell, PI premiums are typically calculated according to total turnover at the start of the period and total turnover at the end of the period and the premium charged is for time on risk. “Licensees are trying to use some obscure logic around PI to try to keep advisers,” he said, “But what they are effectively doing is charging an exit fee.”

This fee can be as much as $12,000 per adviser. “We have a practice of five advisers considering joining Synchron but their Queensland-based licensee wants to impose the run-off charge,” Mr Trapnell says, “A small practice cannot afford to pay an exit fee that will amount to $60,000.”

Mr Trapnell says the same licensee has also imposed what he calls a Hotel California clause. “We call it the Hotel California clause because when imposed it means, as the song goes, You can check out any time you want but you can never leave. Licensees are trying to get advisers to sign agreements which impose such onerous conditions and financial penalties on exiting advisers and their new licensees, that they can never leave.”

Some of the conditions licensees are attempting to impose include a requirement for the adviser to review advice given to all clients within three to six months of termination.

“It is impossible to review a client without physically making contact,” Mr Trapnell said.  “What happens if the client doesn’t want a review, has moved overseas or simply changed address and not told their adviser? Many life advisers have in excess of 500 clients. It is physically impossible to review them all within a three to six month period.”

Mr Trapnell said it also creates a PI insurance problem for the new licensee. “If an incoming adviser has signed this clause and is unable to honour it, they will not be covered by PI insurance,” he said. “How do you review the needs of clients without talking to them? If a client says no, then no PI is in place and if there is no PI in place a licensee has breached licensee conditions and risks losing its licence. These agreements also attempt to contract a person – the client – who is not party to the agreement.”

Mr Trapnell said he is extremely concerned that there are now serious impediments to the free movement of advisers between licensees, both at a legislative and at a licensee level.

“At a legislative level, if an adviser tries to leave a licensee they risk losing grandfathering,” he said. “Where an adviser moves from one licensee to another, the advice hasn’t change; the adviser hasn’t changed; the client hasn’t changed – the only thing that has changed is the licensee and yet grandfathering is lost. This potentially puts hundreds of thousands of dollars of adviser revenue at risk and we hope it’s an issue the incoming government will seek to address.”