Even a cursory glance at an agency agreement shows a number of problems against expected oversight requirements under proposed new Conduct of Financial Institutions law. In fact, most agency agreements, with a few notable exceptions, lack the tools to be really effective today, let alone in the new environment. Common problems include:
- Insufficient detail on what exactly is expected of the agency-holder
- Vague and indistinct ideas about the role of 'advice' in the relationship, usually agency holders are required to be advisers, but they are not required to give advice, and most other performance obligations don't appear to relate to that service
- Speaking of service: it is sometime a vague requirement, but it is rarely defined, and frankly cannot be defined really well without cutting across the variation in business models that is a vital part of the adviser ecosystem
- A mixture of tightly defined things - such as a requirement to meet certain legal standards - which often do not need to be in the contract with a complete absence of some other rules, such as brand use and privacy provisions which are common agency relationship issues suited to being dealt with in the agency contract
- Inadequate dispute mechanisms coupled with the sanction for any breach usually being termination of the agreement. That sanction is rarely used, so the agreement rarely mirrors how the agency relationship actually works
In the new environment there is more complexity, not less. The starting point should be clarity on who the parties are likely to be and what you expect of each other. Defining that in business relationship terms first may give you a smoother path to producing the new document. Chatswood has an agency terms comparison checklist for those of you that might want to have a discussion about this.