The FCA is cracking down on “extravagant” hospitality given to advisers over fears it is creating inducements to sell products and undermining the RDR.
In it final guidance on inducements, published today, the FCA sets out hospitality that is acceptable for advisers to receive.
The FCA says firms have three months to make changes based on its guidance.
The original review, published in September, found payments by product providers to advisory firms linked to securing product sales and made clear that these should be banned.
The final guidance says firms must focus on non-monetary and potential future benefits as well as purely financial rewards.
The FCA says firms need a clearly defined policy with an approved person signing off on all hospitality, most likely a senior person in the company.
As part of the paper, the regulator sets out its criteria of what is good practice for providers offering hospitality:
- The event at which the hospitality was provided was located in the UK.
- Adviser attendance is not based on criteria that incentivise poor behaviours such as business volumes.
- The event is designed for business purposes, such as product training, to boost advisers’ customer service.
- Payments for food and drink are proportionate, not extravagant and any overnight accommodation are only paid for where necessary.
- Providers calculate the ‘per head’ costs of the hospitality and check the reasonableness with the compliance department.
- Promotional prizes are not extravagant and linked to increase knowledge of a provider’s products or services.
- Gifts are not extravagant and were not based on criteria that incentivise poor behaviour.
- Providers keep a regularly reviewed log of all hospitality and gifts provided to advisers over a specified period to ensure some do not receive too much.
The FCA says: “Payments that display these characteristics are likely to comply with the Conduct of Business Sourcebook inducements rules, whereas payments which are not in line with these principles are likely to be in breach of the Cobs inducements rules.
In addition the FCA has issued warnings about providers paying for “significant services” for advisers in a bid to influence products selection. This could include paying most of the costs for a seminar or event as well as funding support services such as IT.
It also warns over increased risk of conflicts from exclusive distribution deals and long-term distribution deals.
The regulator suggests that for adviser firms working off a restricted panel there is less need for significant payments in connection with promoting products as you would expect awareness of these products to be part of ongoing training.
The finalised guidance also makes clear that support service firms will fall under the new rules, as revealed by Money Marketing last summer, despite some lobbying for them to be excluded.
FCA director of supervision Clive Adamson says: “The rules on inducements and conflicts of interest are not new. However our review made it clear there were certain practices that did not stand up to scrutiny.
“In the guidance published today we are helping firms better understand our expectations. Now it is for firms to make sure any payments are legitimate, are in consumers’ interest and that potential conflicts are well managed.”