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FCA cracks down on ‘extravagant’ provider hospitality to advisers

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.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Bang goes that provider sponsored ‘annual conference’ in Malta next month…

    On a more serious note, I wonder how this might apply to indirect inducements, for example providers paying publishing to entertain advisers?

    Also, implications here for some of the larger IFA networks and nationals who rely on this stream of revenue from product providers to stay afloat.

  2. •Payments for food and drink were proportionate and not extravagant and any overnight accommodation was only paid for where necessary.

    •Providers calculate the ‘per head’ costs of the hospitality and check the reasonableness with the compliance department.

    I presume a £15,000 stay for the 9 man FCA board at a 5 Star hotel in Hertfordshire would therefore be the benchmark to use in assessing these items.

  3. “Elephant in the room” is an English metaphorical idiom for an obvious truth that is either being ignored or going unaddressed. The idiomatic expression also applies to an obvious problem or risk no one wants to discuss.

    Firms provide hospitality because they think it brings in business. They continue to provide it because it works.

  4. I really ought to find a new song, but yet again (as Martin has also pointed out) it seems that the Networks and lager firms are the culpable ones.

    It can be argued that these elephantine players have never been a force for good (for the good of the clients, that is).

    The value of being small has always been apparent and becomes more clearly highlighted with each new disclosure.

    Small has never been more beautiful and the Regulator is starting to recognise this.

  5. This Is very very rich after yesterdays scandal of the FCA “away days”. They spend £15000 on a meeting, eat caviar and drink Champagne and of course are totally unaccountable as to how they spend our money, but we have to make do with Joes Cafe if we need a provider meeting.
    Shame on you Wheatley!!!

  6. The minute I read this article I thought of my old Network…encouraging restricted advice with particular investment houses or providers with no ‘obvious benefit’ to the adviser or customer…..

  7. Oops.. Not lager firms but LARGER

    Apologies. My typist used the spell check, but didn’t read it!

  8. I cannot think of a better example of the adage “Do as I say – not as I do”!

    What a load of greedy hypocrites the FCA are proving themselves to be.

    Talk about P?igs and Horses – “Animal Farm”, anyone?

    JCJE

  9. £500 a head should be acceptable then?

  10. I am amazed that Clive Adamson has not weighed in with a response to those outrageous £15k comments…………………..

  11. Double standards and hypocrisy are still alive and well at The Colonnade ~ one set for the regulators and another for the regulated. Disgusting, deplorable, disgraceful, despicable, dispiriting, depressing. Clearly, the regulator doesn’t give two hoots about commanding any sort of respect from those forced to fund its colossal budget. Just pay up or pack up.

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