What to watch out for if your farm consultant or agent is buying or selling your entitlements from/to another of their clients
Farm consultants and agents having completed their clients’ claims adopt different policies as to how to deal with excess or needed entitlements on behalf of their clients. Some will do “internal transfers” between the firm’s own clients. See here for what you should watch out for. The advantages in doing this are as follows:
- The agent/consultant has the ability to make the transfer application online for the client, as in most cases they already have been authorised on their RPA online account in order to do their BPS claim.
- Little or no documentation needs to take place, as the agent is trusted by both parties.
- The clients avoid the need to pay an entitlement agent a commission, as there is no need to go to the open market.
- A sale or purchase can be arranged quickly, again as the agent/consultant is acting for both parties, and is trusted.
- The agent/consultant can quickly determine the market rate by ringing entitlement agents.
As an entitlement agent we have always been happy to help agents in this situation, knowing that towards the end of the trading period we hope agents/consultants will come back to us to handle those entitlements that they can’t match up internally.
However we have noticed a trend with both bigger and smaller firms who traditionally would have carried out internal transfer themselves, now coming to us wanting us to handle all their transfers, both in and out, for their clients. The reasons we have been given for this are as follows:
- The entitlement market is at the best of times not a perfect market. There is no “entitlement exchange” where all transactions are recorded and publicised as with, say, the stock exchange. In practice of course individual entitlement agents buy and sell at different rates which can change hourly.
- There is no such thing as a “market” between two individuals, with an “internal transfer”.
- Subsequently one or both of the agent’s/consultant’s clients will inevitably be compromising on price, relying explicitly on the same agent’s/consultants advice.
- That agent’s/consultant’s advice will depend on the entitlement agents they ring.
- It is difficult for agents and consultants to keep up to date with the type of complications involved with entitlement transfers, compared with entitlement agents who are doing them all the time, and who also provide comprehensive contracts covering what happens when things go wrong.
- Whilst internal transfers may seem to save time and paperwork, the agent/consultant still needs, under RICS guidelines at least, to write to both clients forewarning them of the direct conflict of interest and ensure that both clients understand the implications and have confirmed they are happy for the agent to represent both parties in negotiating/setting the price between them.
- Apart from always leaving an inevitable query as to whether the correct price was paid or received without going into the open market, if a problem does arise it is the perfect recipe for losing a client.
We are now seeing agents/consultants who handle BPS claims not only wanting to avoid any suggestion of conflict of interest, but also the complications involved with dealing with the online transfer system, which the RPA to date have still not got working properly for the third year running, and who recognise they do not have the type of contacts at the RPA that a specialist entitlement agent has to resolve any queries quickly. By steering a client to the open market, the agent/consultant passes responsibility for this to the entitlement agent, together with any problems that might arise subsequently between the clients, relating to the transfer. We have noticed that agents/consultants now appreciate how fickle the entitlement market can be, with prices in the morning sometimes being considerably less or more than prices in the afternoon, and how difficult it is subsequently agreeing a price which is so volatile between two clients. It only takes a big buyer or seller coming to the market at any one time to dramatically shift prices or relevant breaking news having a similar effect on prices.