Exit fees that lock you in
A charge for leaving can reflect real work. It can also make changing adviser so expensive that you stay. The difference is what the fee is for and how large it is.
A red flag is a reason to ask more questions. It does not mean an adviser has done anything wrong. This page describes a practice in general terms and is not about any particular firm.
When it is a problem
- The exit fee applies however and whenever the engagement ends, including after a claim the adviser did not file.
- The fee is a success fee on a future claim you make with someone else, on the basis that the adviser's work contributed to it.
- Your records and working papers are released only on payment.
- The exit fee was not in the proposal and appears in the terms.
When it is not a problem
- The fee is for work actually done on a claim in progress, at the agreed rate, and nothing more.
- A minimum term was agreed openly, in exchange for a lower fee, and the exit fee is the balance of that term.
- Records are returned on request without charge, and the fee covers only the adviser's time.
- There is no exit fee, and the letter says so.
What to do
- Find the termination clause and read what is due on ending, in each case the letter covers.
- Ask whether your records and working papers are returned without charge, and when.
- Ask whether any fee attaches to a claim filed after the engagement ends.
- If the terms are not acceptable, ask for them to change before you sign. The script for requesting your records and the script for giving notice cover the end of an engagement.
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