Product providers are paying significant sums of money to distributors as part of longterm distribution deals arranged ahead of the implementation of the RDR.
Money Marketing has seen an email sent by former Aegon director of partnership and distribution development Peter Dornan to Caerus Capital Group, the venture set up by ex-Openwork chief executive Keith Carby.
The email outlines details of £2m to be paid over a five-year period for “sales and marketing activity to support our partnership”. Aegon and Caerus have a single-tie pension arrangement in place.
The email says: “I am pleased to confirm our intent to agree a programme of activity to support the development of our partnership. We would anticipate making payments to your company totalling £2m over a five-year period for sales and marketing activity to support our partnership. Our intent is based on our partnership launching on the terms previously discussed, developing and enduring for the full five years.”
An Aegon spokeswoman says: “In common with many product providers, and in line with growing market practice, Aegon has commercial arrangements with key adviser group partners. Although we would not comment on individual arrangements, we can confirm that we have a single-tie arrangement in place with Caerus Wealth Management and provide commercial services to Caerus consistent with market practice. However, the letter obtained by Money Marketing is historic and does not reflect the final commercial terms on which the arrangement was made.”
Caerus Capital Group chief executive Carby says: “Caerus, like every other substantial advisory business, is supported by its product providers in line with FSA guidelines. All such arrangements between Caerus and its product providers are compliant.”
It is understood that a number of other distributors offer similar payment arrangements with providers with which they have single-tie deals.
Money Marketing has also seen a document from Sesame Bankhall circulated to providers ahead of formally inviting them to tender to be part of the group’s forthcoming restricted advice proposition.
The “request for information” document includes the question: “What sales and marketing support (over and above normal activity) would you offer to ensure the benefits this proposition can bring are maximised?”
Sesame Bankhall declined to expand on what this extra support could entail.
Payments between providers and big distributors are commonplace in the industry and are often used to pay for joint marketing ventures and events.
For example, other documents seen by Money Marketing include an invoice from support service firm SimplyBiz to a provider for £36,250 as part of a “strategic relationship agreement” for the period July to September, an invoice from support service firm Threesixty for £34,800 as part of a “provider partnership package” for the third quarter and an invoice from network and national Lighthouse Group for £23,400 as part of a “strategic partnership programme” and “participation as a tactical partner” for the period of July 1 to September 30.
SimplyBiz joint managing director Matthew Timmins says the strategic relationship package is predominantly about selling advertising space on the SimplyBiz website and member communications.
He says: “We have a package like that with most providers. It is nothing to do with the receiving of business. It is about paying for advertising space across a series of different advertising routes. From our perspective, we are a non-regulated business with no advisers. This is payment for placing an advert or running competitions with members.”
Threesixty commercial director Phil Young says the firm bills for provider-sponsored events that Threesixty runs for advisers. Young says: “There is not a single penny that we take and retain. Money gets paid on to people but we do not generate any income. No payments are in any way connected to panel positions or anything like that, we have got to be squeaky clean.
“From a regulatory perspective, we are not allowed to make any profit from that in any way. We do not generate any income from it. We have to have audited accounts, we have to ensure and inform providers that there cannot be any profit. It is literally covering specific costs.”
Lighthouse declined to comment.
The FSA’s final rules on adviser-charging under the RDR, published in March 2010, state that, from 2013, adviser firms can accept client charges but will not be able to accept “any other commission, remuneration or benefit of any kind in relation to any personal recommendation that they make or service related to it”.
Firms will also be prevented from accepting third-party payments or benefits that will “impair compliance with their duty to act in the best interests of the client”.
An FSA spokeswoman says: “Contracts would need to reflect current FSA rules. If you have got a contract that is written now, it needs to reflect the rules as they stand now but everybody knows those rules are going to be changing at the end of 2012. We would be expecting to see different contracts.”
She added that the FSA would be concerned if payments linked to specific distribution deals continued after the RDR.
The FSA wrote a Dear CEO letter to banks, building societies, insurers, fund managers and networks in June 2004 over concerns that inducement payments were being paid by providers to advisers to secure distribution ahead of depolarisation. The letter said: “We have been told that, in some instances, product providers and intermediaries may be contemplating significant up-front payments, in some cases upwards of £1m, as a condition for the provider’s products being placed on, or even considered for, the intermediary’s panel or recommended list.
“We consider such payments would not be consistent with the standards of conduct for firms irrespective of whether they will be whole of market or multi-tied. Such introductory payments would be incompatible with the fundamental principle that a firm must not conduct business under arrangements that might give rise to a conflict with its duty to customers.”
Highclere Financial Services partner Alan Lakey says: “It is difficult to work out what is a genuine payment and what is not. Any company that is seeking to persuade someone by means of payment to put it on a panel is certainly not going to articulate that in a contract.
“The FSA has made it very clear that anything that could be perceived to be a form of commission or inducement would be wrong under adviser-charging. Unless a company can prove these deals are part of a justifiable commercial contract, then it would probably fall foul of FSA rules.”
Baronworth Investment Services director Colin Jackson says, given the sums involved, it should be relatively easy for the FSA to uncover a paper trail and investigate what the payments are being used for. He says: “I would be most surprised if payments linked to distribution were allowed to continue after the RDR as it completely flies in the face of the reforms.”