Urgent need to check your client agreement…or get it checked for you

A recent article in Money Marketing highlights a subject that I know many advisers are rightly concerned about and which needs their attention as soon as possible.

I’m referring to Agent as Client (AAC). Now more than ever, it’s urgent that advisers ensure they fully understand what’s involved, particularly as getting it wrong can negatively impact their PI insurance cover.

PI providers are concerned about business risk, which is why some are now asking specific questions about agreements advisers have in place with investment providers and whether this ties in with the agreements that the adviser has with their clients.

How many financial advisers do you think have an advisory agreement with their clients? My understanding is the vast majority – perhaps the clue is in the name! This allows the adviser to make recommendations to their clients.

What this doesn’t do is give them the authority to act in the capacity of agent. So, while the article stated AAC can be used straight out of the box, as set out in COBS 2.4.3 R, this only applies where an adviser has taken the conscious decision to act in the capacity of agent and has changed their client agreement accordingly. This will also impact on some of the client take-on processes as you must ensure the client understands what this means for them, including what happens in the case of a complaint!

We believe the majority of advisers are working on an AAC basis with discretionary investment providers. A recent report from NextWealth states AAC continues to be the dominant compliance framework for outsourced DFMs.

Understanding your current arrangements is critical to how you operate and how you complete your PI renewal documents. For those who haven’t carried out a thorough review of their agreement, they may not realise that this could be out of kilter with what their PI insurance will support.

Using an advisory agreement while acting in the capacity of agent raises some alarming issues – the adviser will have exceeded their clients’ authority; will have given a legal undertaking they do not have the authority to give and will be in breach of the COBs rules on client agreements.

So, if you are in any doubt, now is the time to get your understanding clear. David Gurr, the PFS subject matter expert and independent consultant at Diminimis, offers a service that can clarify your position. Just send him (david@diminimis.com), a copy of your client agreement and the intermediary agreement of your main DFM/MPS provider. It may be the best £50 you ever spend!