What to know when your financial planner leaves their firm

(This is the first of a two-part column dealing with responsibilities of financial planners. Part two will appear Sept. 30.)

Last week, FP Canada, the professional body for financial planners in Canada, issued new guidance on two critical areas—how financial planners must communicate with their clients when leaving a firm and the ethical considerations when referring a friend for other professional services.

Both topics are important for Canadian consumers, as they highlight key responsibilities of financial planners and provide clarity on what clients should expect in these situations. These two key guidance pieces were written as a way to notify industry professionals but it got me thinking that a simpler explanation for consumers would also be helpful.

Here’s what you need to know and the questions you should ask your financial planner to ensure your interests are protected.

One of the major updates from FP Canada focuses on the long-standing responsibility of financial planners when they leave their current firm. Whether they’re moving to a new company or starting their own practice, it’s essential that clients are properly informed of this change.

The challenge is, the former firm and the planner both have competing interests in a move like this, where the former firm is hoping to keep the clients there and the planner is hoping that they chose to move with them.

Firms try to protect their interests by putting “non-compete” clauses in place that often prohibit the planner from contacting clients if they leave. The firms typically take the view (and have it documented in legal contracts) that the client is a client of the firm and not the individual financial planner.

At the same time, FP Canada’s guidance emphasizes that financial planners must prioritize their clients' best interests by communicating these changes clearly and in a timely manner. So the planner becomes stuck in a position where they are required to notify clients properly yet are barred from doing so based on the agreement with their former firm.

Clients often depend on a strong, trusting relationship with their financial planner. A sudden departure can create anxiety or uncertainty about the future of their financial plan. To avoid disruption and confusion, financial planners are expected to provide clients with clear information about:

• The planner’s new contact details and where they will be practicing.

• The option for clients to continue working with them at their new firm.

• Information on who will manage the client’s account if they choose not to follow the planner.

• An explanation of any changes in fees or service offerings at the new firm.

The updated guidance from FP Canada attempts to address the communication piece more clearly for all parties involved, especially when a conflict exists.

If a planner’s employment contract prohibits them from telling their clients they are leaving, they must take steps to ensure the former firm informs them and they must “reasonably believe” the client has been or will be informed of their departure. That should be done via a written request to their former firm and they also need to request a written confirmation in response.

At the end of the day, a client can choose to work with whatever planner and firm that they want and should not be caught in the middle of any of this. All parties involved should be as transparent as possible and let the clients work with who they want.

For consumers, that is a crucial moment to assess whether they want to continue working with their financial planner or stay with the original firm. It’s important to weigh both options carefully, as each firm may have different resources, services, or costs.

Questions to ask when your planner leaves their firm:

• What services will change if I stay with the original firm versus moving with you?

• Will there be any changes to the fees I pay?

• How will my financial plan be affected by this transition?

• Who will handle my account if I choose to stay with the current firm?

• How will my personal and financial data be transferred to the new firm, and is it secure?

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.