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Clinging on: FCA letter reveals providers still breaking inducements rules

Major providers are still flaunting FCA inducement rules designed to stop firms unfairly influencing advisers, Money Marketing can reveal.

A year on from finalised guidance on inducements and nearly three years after a “Dear CEO” letter uncovered firms working around the commission ban, the regulator wrote to 23 providers, advisers, and asset managers asking for more details of distribution agreements and hospitality benefits.

The regulator said it would not be making the findings of its review public.

But Money Marketing has obtained a letter from the FCA to one of the UK’s largest providers detailing a host of events it deems to have broken its rules.

The letter shows providers are still taking advisers to comedy shows, pop concerts and golf tournaments where the FCA “would question if they were capable of enhancing service to customers”.

However, firms warn the “pendulum has swung too far in the opposite direction” and valuable relationships between advisers and providers are being destroyed by stringent rules that will see hospitality cease entirely.

So why are companies clinging onto the practices of the past?

Is there evidence the recipients of hospitality are influenced?

And is the regulator’s approach of individual negotiation really the most transparent and effective way to improve the market?


Following final guidance on inducements published in January 2014, Sesame was fined £1.6m for operating “pay to play” distribution deals between 2012 and 2014.

The fine signalled a renewed regulatory crackdown on the relationships between advisers and providers. However, the letter obtained by Money Marketing, dated 30 September 2015, clearly shows firms side-stepping the rules through corporate hospitality.

In the letter the regulator not only takes aim at the type of events, but also admonishes the firm for inviting senior advice executives who “are more likely to be in a position to influence decisions taken by the firm which affects clients”.

In addition, it challenges the company for purchasing “disproportionately” expensive tickets.

Records submitted by the firm show it provided hospitality at events, including two pop concerts, stand-up comedy, sailing and West End theatre.

Another large provider was told it should not be offering advisers hospitality at international cricket matches, Money Marketing understands.

The FCA says: “The information provided did not demonstrate that such hospitality was designed to enhance service to customers, and given the nature of such events we would question if they were capable of enhancing service to customers.”

The letter also questions advisers’ attendance at a racing meet in addition to an investment workshop held as part of the event. Fairer Finance managing director James Daley says: “While it’s undoubtedly true that spending a day out with a contact can cement a better relationship than might be possible over a coffee or a sandwich, the harsh truth is that better relationships lead to bias and prejudice.

“If you’re an IFA, your job is to sell the most suitable products to your client. But if you start to take hospitality from one or more providers, your independence is compromised.”

Former Which? financial services policy lead Dominic Lindley agrees.

He says: “The RDR was intended to remove the influence of product providers over the advice process. It is disappointing providers are still trying to influence advisers by offering expensive corporate hospitality. It is questionable consumers get any benefit from their pension company paying for advisers to attend concerts and sporting events.

“The FCA should name the firms involved in its review and remind the relevant approved persons within the firms they are responsible for signing off the overall policy on corporate hospitality. Product providers should concentrate on providing advisers with services which genuinely benefit customers such as training events and improvements to IT systems.”

The regulator also picks apart the firm’s decision to give the most expensive tickets to a golf tournament to senior management and not to people who make personal recommendations.

It warns although senior staff at advice firms may not give advice themselves, “the more senior the individual to whom the benefit is offered, the greater the risk that the firm’s decision-making is influenced”.

In addition, the FCA says an agreement between the provider and a major network falls short of what the regulator expects. It notes the provider paid for the network’s training events at the market rate, when in fact it should be charged at cost price.

Provider chiefs say they are now clear on the rules.

Aegon chief executive Adrian Grace says: “The rules have become a lot clearer over the last six to nine months. When the RDR came in there was a lot of grey. We absolutely abide by the rule of law and have no doubt about where the line is drawn.”

Standard Life UK and Europe chief executive Paul Matthews says: “It is quite clear the regulator is very supportive of events where we are meeting up to talk about how we can help advisers to help customers and can show this can lead to better customer outcomes.”

It’s good to talk

Despite the regulator’s intervention, some providers have hit back claiming the “pendulum has swung too far” and the latest crackdown on inducements could actually harm customers.

A senior director at a provider who wished to remain anonymous says: “Have we got to the point where relationships that could actually improve customer service and value are not being allowed to happen? We need to look into whether attendance at training events – which might be accompanied by some entertainment – is less than it once was. Actually we could be damaging customer outcomes by not allowing normal commerce to occur.”

The director adds the growth of restricted advisers clouds the issue.

They say: “There is another trend in the marketplace towards restricted advisers who are choosing only to go with one or two providers. I do not know how you divorce that trend – which is supported by the regulator – from looking at any evidence of a provider being favoured because of the hospitality they might provide.

“In that climate it is very hard to see whether hospitality is swaying decisions.”

Simplybiz’s New Model Business Academy managing director and former Tenet head of business development Tom Hegarty has sympathy with providers navigating the FCA’s guidance.

He says: “Every industry has corporate boxes for entertainment, is it any different if financial services firms have a meal and some drinks beforehand? Flying someone abroad is probably excessive but I don’t understand how an occasional sporting event can be classed as inducement.

“It’s using a sledgehammer to smash a nut, why didn’t the regulator take action directly with those providers who broke rules which have always been in place?”

‘Cowboy season’

However, it appears life companies are not the only organisations overstepping inducements boundaries. Wingate Financial Planning director Alistair Cunningham says March and April is “cowboy season”, which sees firms blatantly incentivising advisers to place business with them.

One email sent to advisers by Arterial Capital Management – seen by Money Marketing – offers an “exclusive” invitation to Silverstone, including helicopter chauffeur to the track, if advisers introduce at least £500,000 into any of the firm’s enterprise investment schemes.

Arterial could not be reached for comment while the FCA says it does not comment on individual firms.

An FCA spokesman says: “Since the RDR was introduced, we have kept a close eye on inducements between product providers and advisers. Following concerns raised by a review in 2013 we published new guidance in 2014 and committed to undertaking a further review last year. That work is now complete.

“Our intention in undertaking this work had been in part for it to inform our consultation on Mifid II, which includes new European standards to lessen and control conflicts of interest. However, the European Commission has recently confirmed a delay in the implementation date of Mifid II, which we support.

“In the light of this we have decided we will now add the key findings from the latest inducements thematic review on our website, along with a reminder of our expectations. This will be available over the coming weeks.

“Our 2014 guidance is clear. We have been liaising closely with the industry since we published it and now it is for firms to make sure any payments, hospitality or gifts are proportionate, in consumers’ interest and that potential conflicts are well managed.”

Adviser views

Daren O’Brien, director, Aurora Financial Solutions

We try and steer clear of providers. Ten years ago it was exclusive golf club invites and now they will just ask  to drop around to our office for a sandwich. The market has cleaned up considerably as most providers have been running scared over the last few years, which is a good thing. We actually log everything spent on our advisers that costs over £10 just in case the FCA comes knocking – it is important there is a clear definition of what providers are giving you in terms of service and inducements.

Alistair Cunningham, director, Wingate Financial Planning

I have heard anecdotally providers will say they will still invite advisers to events but will tack on some CPD at the back or front end. I find the whole thing really painful, I am not going to go because I do not have any interest in going to events with
a provider.


Customers will suffer from inducements crackdown

I do not think post-commission the kind of stuff that used to go on, hitting sales targets and being in exotic locations, is OK – that needs reform. But has the pendulum swung too far? Have we got to the point where relationships that could improve customer service and value are not being allowed to happen? We need to look into whether attendance at training events – which might be accompanied by some entertainment – is less than it once was. Actually we could be damaging customer outcomes by not allowing normal commerce to occur.

We are seeing  people are withdrawing the things they used to do – so there will be more distant relationships between advisers and providers. And I am not convinced is this in customers’ best interests.

There is another trend in the marketplace towards restricted advisers who are choosing only to go with one or two providers. I do not know how you divorce that trend – which is supported by the regulator – from looking at any evidence of a provider being favoured because of the hospitality they might provide. In that climate it is very hard to see whether hospitality is swaying decisions.

It is also a massive administrative burden if you have to justify every cup of coffee in terms of customer benefit – I’m not sure that is time well spent. There should be clear guidelines detailing de minimis amounts and advisers should be prepared to declare what corporate hospitality they have attended.

There are times where people have specific circumstances – an emergency need for cash or if there has been a mistake – and because the adviser has a good relationship with the provider they can bypass the call waiting queue and get something done. If those relationships disappear I do not think the FCA’s actions improve outcomes at all.

Anonymous provider director

Five star treatment will bias advisers

Corporate entertaining has long been a part of the way people do business – not just in the UK, but the world over. Full disclosure: in my days as a journalist, I was the beneficiary of many a trip to the football or the races – even some trips abroad. And whatever the event, no expense was ever spared.

In my line of business, the justification was the same as it is everywhere else – “it’s all about relationship building”.

While it’s undoubtedly true that spending a day out with a contact can cement a better relationship than might be possible over a coffee or a sandwich, the harsh truth is better relationships lead to bias and prejudice. If you are an IFA, your job is to sell the most suitable products to your client. But if you start to take hospitality from one or more providers, your independence is compromised.

We all like to think we are able to keep our independence, even if one insurer is entertaining us and another is not. I spent years as a journalist telling myself that lie.

But the reason companies plough millions into corporate entertaining is it works. Journalists are more likely to quote – or give an easier time to – the people who have wined and dined them. IFAs are more likely to push more business towards a provider that has given them the five star treatment.

For journalists, that means you cannot trust everything you read in the press. Not exactly a revelation. For IFAs, it means customers may be getting a bad deal because you have got a soft spot for a provider who takes you to the footie. The regulator is right to crack down on inducements. It will not be popular – but that is why it is a job for the regulator. Left to their own devices, companies would never give it up.

James Daley is managing director of Fairer Finance


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FCA: We’re still concerned about inducements

The FCA says it “remains concerned” that some advice firms are falling foul of its inducement rules. In a speech yesterday at the FCA’s Mifid II conference, director of policy David Geale said firms may still be receiving benefits that have the potential to influence the advice they give. Mifid II comes into force in […]

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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I think all these inducements, invites to events, golf days, race days etc. are disgusting and simply wrong – especially as I’ve not been invited to any!

  2. The medical profession gets incentives from reps all the time and their risk of professional compromise has a far more devastating potential effect than any financial arrangements ever can.Its this thing about money in its raw state that ranks above all else in society. Rob a bank of 5 million quid and its 30 years, because the sanctity of money ranks above all else and must be as pure as pure can be. Commit murder and its a second tier crime and its only 15.

  3. Precisely how does the idiot regulator suppose that a provider can show that hospitality of any kind was in the consumer interest? This is all bonkers. Some sort of entertaining goes on in more or less every kind of business. The purpose is to gain influence. So what? In my experience, admittedly a long time ago, IFAs loved being entertained, but never felt any obligation to write business in consequence. Entertainment gave the opportunity for persuasion, which succeeded some but not all of the time. And in some of our best relationships, we’d take a firm’s advisers out on one visit, and they would take us out the next time we met. How would the new rules deal with that?

    We had a rule about reasonable entertaining back then. All that was needed was to crack down on pay to play, network conferences and other big ticket items, not start a new bureaucracy and reporting regime around bottles of light ale.

  4. I will be honest and say; yes I have in the past been invited and went to rugby matches, cricket matches, horse racing, lunches, and more… the question is / was this inducement to future bias ? I would answer no, it was more of a thank you for past support…. hard to argue ?… yes almost defiantly.

    I do wonder though if the regulator is searching the bottom of the barrel for any kind of bias to support its arguments

    Now all I seem to get invited to is a mind numbing seminar with a crusty egg sandwich, coffee you can stand your spoon up in ! probably a good reason not to do business, with the hosts company ? mind you, a bit like the last FCA road show I went to, however I had to pay for that privilege……. its a crazy world out there kittens !

  5. The FCA needs specific proof that business has been placed with a provider simply as a reward for offering a specific inducement. The invitation to Silverstone for £500,000 worth of business mentioned above clearly falls into this category and few of us could quibble with the FCA’s reaction. But along with many others I am sure, the only entertainment I have accepted has come from providers I already deal with because their service levels are acceptable and the contracts meet my clients’ needs. There is no necessity for this to end just because someone at the FCA has suspicions.

    Personally I also need to have an interest in the event; I can remember being at the Oval as a guest of one provider with whom we had done business for years ( I played club cricket regularly for over 40 years) and being the only member of the party who left the luncheon table to watch the afternoon session (which started at 1.40) whilst the rest of the party continued with their meal and wine. That surprised me. The provider concerned did not get more or less business from me after the event – we made the same judgments as before – but I did get to know one or two of their staff better rather than knowing them as a disembodied voice at the other end of the phone.

  6. To me this is very simple, if you accept an invitation, you document it, explain why it is acceptable, such as the business you have already completed justifies that company wishing to thank you. If you have done no business with that company, then that is an inducement OR IS IT.

    The world of business at all levels depends on networking and exposer to the right clients that you want and are able to do business with. Is accepting an invitation to visit say a platforms or life companies HO and fund managers for research and due diligence an inducement? You might get a free lunch, might even get your travel paid for and hotel over night. what if you pay for a flight, all the travel expenses and they pay for a hotel?

    The regulator is also in danger with this ill thought out ruling. I remember all to well the FCA spokesman delivering the new rules complaining how much weight he gained explaining it to the companies? !!!!!

    The fact is this type of ruling can only work if there were a total embargo, which means no company, life office or platform could even offer you a pen.

  7. It is clearly incumbent on the regulator to provide unequivocal direction rather than guidance which leaves it to firms to make educated guesses.

    When is an inducement a permitted one? In the FCA Handbook, in particular PERG, an inducement is described as “…a link in a chain where the chain is intended to lead ultimately to an agreement to engage in investment activity”. Perhaps anything that might influence an IFA should be banned…

  8. One wonders just what inducements SJP and HL offered the FCA to obtain exemption from its rule banning the imposition of exit charges on many of their products even, in the case of HL, ISA’s.

  9. There is the inducement of an entertainment event or a day out and there is the inducement of preferential terms. As has already been mentioned I was happy for the day out. I enjoyed myself but it didn’t influence where I placed business. I recall several invitations years ago from the now defunct LAS. I never gave them one piece of business.

    On the other hand preferential terms skews the market and it is right that this is stamped upon.

  10. The FCA must be having a slow day in the pressroom. FFS get into the real world

  11. I’d be interested in the Silverstone deal – but only if they let me drive!!

  12. Possibly a slightly Taliban view, but to me its simple. We only get paid by our clients, and so if I want to go to an event, I go. I neither want to owe a favour, nor rip of the providers shareholders by accepting money – and that’s what it is – when I have no intention of doing business with that firm.

    Here is a radical idea to improve relationships: Sack all the ‘Hospitality’ type staff, cut our all the Cricket and Tennis, and use the cash savings employ more people and better systems in clients services. Improve response times. Stop transposing dates of birth. Return phone calls.

    Call me radical, but that would actually be a breath of fresh air. The resulting increased profit would allow me to take our staff away as a thank you – ‘Incentivise’ them to look after our clients. Who actually are the ones who pay us

  13. Another restraint on individual freedom.

    If a provider wants to invite me to an event such as Ascot or the Belfy then that in itself is not a concern and the regulator should keep its snout out of things unless it can prove that my advice has been influenced by such generosity.

    Is the invite a reward for business previously given, is it an incentive to consider that provider more favourably or is it simply marketing a company and /or its product range?

    If there is a ‘crime’ here it is the adviser who is so stupid or malleable that he/she selects one provider over another due to the hospitality.

    What the FCA is saying is that advisers are so stupid or venal that they must be protected from the marketing ministrations of the providers.

    Frankly, I’m insulted that I should be considered so readily adjustable. It seems that we are now potentially guilty of a rule breach so let’s change the landscape to stop us from being so incited.

    Again, am I the only one who reflects this way?

  14. I don’t know if anyone has mentioned this but it should be flouting and not flaunting.
    Please try to be correct in your use of English.

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