The results from today’s FCA review on inducements paint a concerning picture. Poor management culture with a reliance on marketing allowances risks undermining the RDR.
Principle 8, which covers conflicts of interest and inducements, should be a core consideration when providers and advisers structure any service or distribution agreement. Yet the FCA found over 50 per cent of such agreements it sampled breached this principle.
The regulator is concerned the ‘old-school’ short-termist activities structured for instant gains could cancel out the long-term benefits of the RDR.
When I worked in Asia over a decade ago there were certainly inducements galore and plenty of conflicts of interest. The worst-case I remember is literally being offered a bag full of cash for the pension products I sold for one particular provider.
Such a ‘bung-culture’ still exists in some parts of the world, but we are now seeing an interventionist global movement towards consumer protection and professional services. This means putting an end to instant gratification.
Distribution payments linked to securing product sales, joint ventures where service propositions are designed jointly by providers and advisory firms and panel partnerships where distribution is secured through payment means that advice is influenced by commercial decisions not client interests.
The FCA’s behaviouralist strategy for consumer protection now means that such dysfunctional management culture will bring enforcement action, such as fines or bans.
Those firms (and there are many out there) who have focused their business plans on proper corporate governance, team support systems, paraplanners and data management systems will thrive.
In the good old days, professional service firms valued the legacy they left to the next generation of managing partners. I wonder if those days can now return before the heavy hand of the regulator dishes out the fines?
Chris Davies is managing director at Engage Insight