The FCA is cracking down on “extravagant” hospitality given to advisers over fears it is creating an inducement to sell products and undermining the RDR.
In it final guidance on inducements, published last week, 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 providers to advice firms was related to securing product sales and made clear 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.
The regulator has also issued warnings about providers paying for “significant services” for advisers in a bid to influence product 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 or 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 support service firms will fall under the new rules, as revealed by Money Marketing last summer.
The paper also toughens up proposals on providers buying management information, data and research from advisers. The regulator says advisers must not make a profit and derive “genuine business benefit” from offering these services.
Association of British Insurers head of regulation James King says: “This may raise practical and commercial challenges for adviser and provider firms, and could make it difficult to pay for services that ultimately benefit consumers.”
Candid Financial Advice IFA Justin Modray says: “Corporate hospitality, ranging from lunches to exotic entertainment and trips, is rife and while advisers must keep a log of this it is not publicly disclosed. I would prefer advisers to introduce a blanket ban on hospitality.”
FCA good practice guide to 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.