Establishing relationships with the network often brings new prospects to consulting firms.
But while future opportunities may be attractive, it is crucial to carefully review the exit terms outlined in the contract before signing.
Ignoring these terms can lead to significant challenges when seeking to leave the network. After all, plans, business priorities and network propositions may change.
The ability to move without financial impact or limitations should be high on anyone’s priority list.
If a company decides to leave, it may be necessary to repay the received “Golden Hello” funds.
This issue is not unique to the web-any major company could attract similar attention. The same diligence is needed to protect your interests.
The importance of fully understanding your contract cannot be exaggerated. Due to the terms they reached at the beginning of the relationship, consultants often face obstacles or, in some cases, completely prevent the transition to a new principal.
There is growing concern that certain exit terms may be unfair or unilateral, so leaving or limiting the consultant’s ability to operate is very expensive. While such terms can be legally challenging, doing so can be expensive.
Economic penalties
A common problem is that when consultants leave the network, they are fined. These penalties may vary and in some cases seriously affect the consultant’s ability to continue to grow.
For example, a contract may include a specific financial amount owed at the time of exit. While it may be reasonable for the chief company to recover the training fee shortly after eligibility, this must be clearly stated in the contract. If not, such terms can be challenged.
If you are a consultant considering a new network, do your research and compare models
Another frequent fine is that the compensation protection committee is still being repaid during the rebate period, which may involve considerable amounts.
Freeze pipeline business
Another common challenge is to freeze pipeline operations during notifications.
This practice stops payments to outgoing companies, creates cash flow difficulties and can endanger the entire operation. While it is understandable that former major companies may wish to limit financial exposure during the transition period, a complete freezing of revenue can be punitively disproportionate.
The problem becomes even more problematic when combining notification periods with notification periods over 90 days, as this adds any financial stress.
Some contracts require the consultant to provide a notice period of six months or more. During this time, companies may not be able to move to new networks or operate independently, putting them in an uncertain and restrictive position.
For companies, it is crucial to fully understand the terms they agree to
Advisors should also be aware of the terms that limit restrictions upon notification – some contracts provide that this may only occur in a specific timetable, e.g.
each year. Effectively, the latter may result in an 11-month notice period.
Automatically updating contracts can also pose challenges. These agreements may cause advisors to adversely affect clauses for extended durations, creating significant barriers to exit.
In some cases, the network retains the company’s compensation committee funds even after leaving, and may even reject news. This can cause unnecessary financial stress when used in conjunction with other adverse contract terms.
In fact, Novation is a tripartite agreement between the previous network, product provider and the consultant/company or the new network, which agrees to assume all liability of the agency. Previous networks could publish the committee know that it is not responsible for potential rebates.
Professional compensation
The runoff cover of Professional Indemnity Insurance (PII) represents another potential financial burden for the consultant company.
As Cornerstone Finance CEO Haydn Thomas pointed out, the cover request for runoff ranges from the fair (even generous) to the ridiculous.
The consultant believes that using third-party consultations when considering changes may be very beneficial
“Ask the network if it is possible to calculate, and if you don’t make sense or feel too much, it’s a challenge. Industry specifications/templates will be a huge development.”
Stonebridge recruitment director Lesley Sharkey has taken a similar route.
She said: “This [run-off cover] Pricing should be reasonably priced, not ransomware. Sadly, as part of its exit process, we encountered cases where businesses charge high fees, totaling tens of thousands of pounds, a way we consider exploitative. ”
The cover usually lasts for six years after the consultant/company stops practicing or moves, which means it prevents claims arising from the advice given during their active period even after they move or stop working.
Although some have pointed out that the responsibility for recommendations based on the principal’s supervision (and PII provider) should be retained within the principal, some contracts transfer this responsibility to the time the consultant leaves. Many believe that when the principal’s sales process and supervision is given, the PII should cover the recommendation.
Independent attorneys may challenge them if the contract is unfair or excessively restricted
However, the simple answer is that every major company may be different. Everyone decides how to treat leaving the consultant and consent with their own PII provider. If it agrees to recommendations that will not be retrospective, it may reduce the overall PII premium for the consultant.
The network/principal will then “advise” the consultant to phase out the PII to assume any potential liability for the advice given under its supervision. Again, many people think this is very unfair.
It is crucial to have a careful understanding of how each major company deals with this issue, as practices may vary.
Anti-competitive clauses
Anti-competitive provisions that restrict companies from conducting similar businesses within designated timetables or geographic areas may seriously affect future opportunities.
Although such clauses are often successfully challenged in court, their presence in contracts can delay or complicate the exit process.
Most importantly, reviewing and understanding the exit terms is crucial for the consulting firm before the commitment network. Awareness of potential economic penalties, operational disruptions and restrictive provisions can enable consultants to make informed decisions and safeguard their long-term interests.
We have had cases where companies charge high fees as part of their exit process
It seems to be a perfect match at the beginning, which can be proven in addition to further distances. As Ahmed Bawa, CEO of Rosemount Financial Solutions, explained, the network may provide substantial “golden hellos” to induce companies, but these come with the conditions.
“Companies are often related to conditions such as minimum tenure, business objectives, or the use of internal (usually expensive investment products) of the network,” he said. “If the company decides to leave later, it may be necessary to repay the ‘Golden Hello’ funds, resulting in financial stress and turning the welcome into “Golden Handcuffs.” For companies, it is crucial to fully understand the terms they agree to.”
“In addition, we have observed that the network prevents consultants from accessing CRM systems during notification periods, thus limiting their ability to manage customer relationships or retrieve data,” Bawa continued.
Put the pen on paper
Robert Sinclair, former CEO of the Institute of Mortgage Agency (AMI), stressed that AMI recommends that all consultants and companies read and understand the contract thoroughly before signing.
Runoff cover requests range from fairs (even generous) to ridiculous
“Review the exit clause and seek independent legal advice before submitting if necessary,” he said.
Sinclair’s advice is fully supported by Amanda Wilson, director of online sales and recruitment.
“Advisors should always seek legal advice before signing any network or AR contract. In cases where the contract is unfair or excessively restricted, independent attorneys may challenge them as challenges that cannot be enforced or limit the ability to trade,” she said.
“If you are a consultant considering a new network, do your research, compare models and make sure you have the flexibility and impartiality you need to grow your business. Browse the FCA registration and call the company in your network of choice for their comments.”
Third-party support
Financial Services recruiter Jonny O’Dea also stressed the importance of third-party support.
“While this is not necessary, we often provide support by directing the consultant to guide the consultant to experienced attorneys and leverage past experience. That’s why the consultant believes it would be very beneficial to use third-party consulting when considering changes.”
Industry specifications/templates will be a huge development
“While the responsibility of consumers is intended to protect and promote fair treatment to consumers, it should be equally committed to ensuring that consultants are treated with the same level of consideration and respect,” O’Dea added.
Although it is obvious that the exit practices and terms of certain networks are not good for consultants, it is important to acknowledge that both parties have their own interests to protect. Principals must protect the risks of the business, while consultants and businesses need to make ends meet and support their families.
Achieve a fair balance is crucial.
This article is in the April 2025 version Mortgage Strategy.
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