‘Wild’ FAAA stance on non-compete clauses would strip PYs of agency

Earlier this week, Financial Advice Association Australia (FAAA) released its submission to Treasury regarding non-compete clauses, suggesting employers should be able to implement a non-compete period of up to two years for professional year (PY) advisers.

This marked the latest development in this issue after Labor initially announced in its pre-election budget in March that it planned to abolish non-compete clauses for workers earning under $175,000 starting from 2027.

In its submission to government, the FAAA argued this measure is intended to incentivise smaller advice businesses that may not be willing to take on a PY “given the increased uncertainty that they will be poached after they conclude training”.

“Other businesses could easily offer them a pay increase to encourage them to move as a means of avoiding the cost of employing them during the professional year … We believe that in this case, there is a justified case for enabling these employers to apply a non-compete clause for a certain period after the new financial adviser completes the professional year,” the submission said.

This comes as the stagnating profession struggles to bolster its numbers, with the PY advisers acting as a significant “bottleneck”, according to the FAAA.

However, many advisers have taken issue with the suggestion that non-compete clauses should be maintained for PYs, with independent financial adviser Nathan Fradley telling ifa this would “create additional barriers in an area we can’t afford to have barriers”.

Fradley added: “The proposition feels so unaligned with everything the FAAA is about which is what surprised me about it.”

In a LinkedIn post on the subject, Fradley further said: “I can understand the fear and frustration of losing employees you’ve put a lot of time, effort and money to develop, but this ain’t the solution and frankly I’m surprised it was the FAAA’s position.”

Although recognising business owners’ concerns, Fradley said introducing non-compete clauses for PYs would only put further strains on the limited supply of aspiring advisers, exacerbating an already critical issue for the profession.

“Of course, you’re trying to remove the barrier of financial advice practices, you’re encouraging them to hire but is this actually encouraging them to hire or is this removing the supply of people who are willing to be hired?” he said.

“It’s further disincentive, especially in an environment where there are so few associates around, the market is starving for talent here. Like any job, bringing on someone and training them is going to be an investment with a chance that they leave, so the PY has nothing to do with it. Carving that out specifically for PYs is kind of wild.”

Fradley added: “There’s just so many questions I have as to why they decided this was an appropriate decision.”

This sentiment has been echoed by the wider profession with Peter Worn, the joint-managing director of Finura Group, commenting on LinkedIn: “In my capacity as a non-executive director of advice firms, I cannot support the use of non-compete agreements for professional year advisers as proposed by the FAAA.

“Placing developing talent in what appears to be a hostage situation is fundamentally at odds with the idea of being a profession. The right way to retain PY advisers is through opportunity – pathways to equity, a compelling culture, and a supportive environment – not through restraints.”

Jackson Raddysh, a PY at Prime Advisory, also added to the discussion, stating in a LinkedIn post: “Forcing a new adviser to work for you is a sure-fire way to continue shrinking the number of us in the profession, whilst compromising basic free will.

“If firms are concerned about losing PY advisers – enhance your value proposition to give them good reasons to stay. Being shackled to an employer is not a motivating prospect – whether they are a great place to work for or not.”

Currently undertaking his own PY, Raddysh argued that a two-year non-compete clause would strip aspiring advisers of agency, leaving them unable to make independent career decisions.

“It just feels a little bit limiting. It’s just very inflexible and would make you feel dejected,” Raddysh told ifa.

Trying to understand the reasoning behind the FAAA’s position, Raddysh suggested this may have been in response to advocating from practice owners to protect their interests.

“I wonder if it’s just a bit of an emotional reaction from some advice practice principals who are just kind of struggling with retention. If they’ve got in the ear of the FAAA and want some advocacy in that respect. But I don’t think it’ll help them or PYs or the profession, for that matter. It just seems a little bit counter-intuitive,” he said.