In an email to members, Association of Independently Owned Financial Planners (AIOFP) executive director Peter Johnston has warned that the interests of authorised representatives may not be a high priority in cases where licensees enter administration.
“A very relevant issue in recent times has been the security of adviser income if the practice runs into difficulty and administrators are appointed,” Mr Johnston said.
“AAA and AFS are prime examples where the advisers’ income was not quarantined and it was dispersed into general revenue to be at the mercy of the administrators’ fees.
“Not wanting to be too pessimistic but there are not too many examples where anything is left for creditors after the administrators have completed their work.”
Mr Johnston said the problem could potentially affect both large and small advice practices, and called on advisers and practice principals to ensure adequate safeguards are in place.
Last week, ifa revealed that former authorised representatives of AAAFI will only receive commission payments owed to them by their former licensee once the appointed liquidator receives outstanding debts, and that external debt collectors had been contracted.
“Once we are satisfied that all amounts have been pursued and recovered to the greatest benefit of all advisers, we will then proceed with a distribution,” said an email from a spokesperson for the liquidator Lawler Partners to a former AAAFI authorised representative, obtained by ifa.
In August it emerged that former advisers of Australian Financial Services (AFS) Group, which entered voluntary administration in May, would not have access to liquidated brokerage accounts following a court ruling.
In response, John Prossor, director and founder of non-aligned licensee Synchron and member of the AIOFP, called for advisers to be paid on a daily basis in order to avoid income security risks.
“The non-payment of the AFS trust holdings is really unfortunate for the advisers who earned the money…. It’s not the first time this kind of thing has happened,” Mr Prossor said.
“A very similar thing occurred when another licensee, Silvalake Financial Services Group, was placed into liquidation almost 10 years ago.”
Should the interests of administrators take preference over former advisers? Have your say below.
Our dealer group has already executed a deed of trust for brokerage revenue so this is no longer a risk in our business.
I agree with Kev, but in the case of AAA the commissions were held in a seperate trust, the administrators are using loopholes to get their grimy hands on the advisers commissions – I say bring in ASIC to investigate Administrators, they suck the life out of the companies they are supposed to be winding up – ANSETT is still going earning the administrators good money while the employees are still waiting for their benefits!!!
The problem in a post FOFA environment is that the licensing ensures that the revenue is paid to the licensee when its the adviser has the relationship with the client. I have been asked may times “why” are we paying our fees to this non descript third party when its the adviser doing the work? Regardless of that argument there is no way around this but as soon as a comm payment is late or defers for what ever reason start making other arrangements to get out of that dealer group.
The real issue here is the licensing system in that all adviser revenue by law has to be paid to the dealer group first.
Gav – the administrator is under a LEGAL obligation to act for all creditors in an even handed and fair way – sometimes in complex cases by court order.
They are doing their job – period.
You have to comply with the law and so do administrators – pretty simple really.
Play the ball (the legal system) and not the man (administrator).
Utterly ridiculous situation that has occurred. Advisers agree a flat fee or pay a percentage (2%-3%) for research and compliance services from their dealer group. Completely agree with Kevin. This is nothing more than a greedy administrator taking advantage of the situation that a business operating as a dealergroup has mismanaged their funds and now the CLIENTS (Advisers) of the dealergroup are footing the bill…..
Every contract is biased towards the issuer – always has been. You have a choice of not dealing with anyone if you so desire.
Sam is correct – negotiate very tight payment terms, and if not happy then walk.
This my friends is what being in business is all about – sometimes a creditor goes bust. It happens all the time.
And for any FP who has been around for more than a few months they will know all about businesses going bust and the FP clients getting X cents in the $ back. I’m sure those clients were just told that ‘it is the way it is’ and there is always risk.
Anyone who is in business or is self employed probably has experience of bad debts or creditors going bust.
Not sure why this article suggested that advisers should take precedence – silly really – just winding folks up.
Not to mention that these Licensee agreements are all of a biased nature in their terms, are based in full favor to the licensee and are always tilted toward the licensees benefit and the authorized rep gets screwed every which way!
This is a pointless article.
At the end of the day a Liquidator or Administrator has to treat all creditors equally. Though Staff entitlements and Secured creditors stand in in front of unsecured creditors in terms of priority. Adviser Comms and fees are always going to be part of the pot to distributed among creditors. The best thing advisers should do go with a dealer that pays regularly (weekly) and be prepared to jump out of the dealer arrangement as soon as there is a sign of trouble and switch the client servicing.
ADVISER COMMISSIONS SHOULD ALWAYS BE PLACED IN A TRUST ACCOUNT AND NOT BE PART OF GENERAL REVENUE TO THE LICENSEE!