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FCA: We’re still concerned about inducements

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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 January 2017 and will introduce a new inducements regime for firms providing independent advice or portfolio mamagement.

It will ban all payments from third parties, apart from certain “minor non-monetary benefits”.

Geale said while the measures should feel similar to the RDR rules, they will extend the regime to portfolio managers and “refocus the FCA’s attention on inducements more generally”.

He said: “Since the introduction of the RDR, we’ve maintained a supervisory focus on inducements.

“While we are encouraged by many advisory firms changing their practices to ensure their advice is not influenced by payments from product providers, we remain concerned that some firms may still be receiving benefits and payments that have the potential to bias the advice they provide – in other words, that their culture may have remained unchanged.”

Geale added: “For advisers, we will continue to focus on ensuring that firms are not incentivised to sell inappropriate products to their clients, while for other firms MiFID II is likely to prompt us to question whether the receipt of an inducement is genuinely designed to enhance the quality of the service to the end client.”

In September 2013, the FCA revealed two firms were facing enforcement action after a thematic review found that arrangements between providers and advice firms could undermine the RDR.

In October 2014 Partnership announced the FCA had discontinued its investigation into whether the provider struck a distribution deal with an advice firm which breached inducement rules.

Sesame was fined £1.6m by the FCA in October 2014 for setting up “pay to play” distribution deals.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. If you going to talk about inducements to advisers then we may have to talk about inducements to senior regulator staff i.e. jobs for the boys!

    Remind me where did Hector Sants go after his tenure at the FSA!

    Oh yes Barclays a bank that the FSA was investigating for serious breaches of its code.

    I like many IFA’s don’t accept any payments from providers may be the FCA should put its house in order before creating yet more new rules.

    I would also like to see the evidence before any new rules are created.

    • Very good and valid point Peter !

      But as we know the regulator, believes there are no poor outcomes for the consumer in its policy or actions, even when they waste their money on “away days”, poor IT, bad communications, inflated salaries, countless “employment” benefits the staff get,………. Oh and I suppose the biggy is, the FSCS levies, they are snowballing out of control, by the FCA always being behind the curve, in relation to unregulated products,…… now what was the figure quoted by CAB the other day 9 million !!!! lost in pension scams, just this year !!

      My clients money is hard earned and the more I get charged for poor regulation the more they have to pay to cover this, how many FCA staff have salaries in excess of a 100k a year ? how many cuts have they made in the past 5 years ? some clients now save to pay my fees !

      Can I ask one question……. what incentive is there for David Geale, or any senior manager or director to really sort out these issues within their own organisation, and give some regulatory dividend or benefit back to the customer of good honest IFA’s ?

      None really….. as we are the ones who pay their bills, salary, nice offices, bonuses, assurance for the FSCS, away days or weekends, the list goes on and on.

      And to come back to your point Peter, the quite public bed hopping that goes on, they (FCA senior staff) are quite open about using their time at the regulator to spring board their way into an executive position with companies close to hand ! Sants, Cole, Smith, Adamson ………

      I am quite surprised Geale hasn’t asked for another expensive thematic review to last another year so they can fully understand this issue !

      To my mind regulation and the FCA is the biggest contributor to poor client outcomes and just as accountable as any scammer, in the bad perception of the financial services industry !

  2. Must be a slow day for the regulator if they are bringing up this old chestnut again. It is hardly a big problem or the FCA would have been over this like a rash. I would be interested to find what sort of numbers they thinks are in breech when they use the wooly words “some firms”. The only ones i know about are those previously reported. So 80 agreements were reviewed, up to half “Could be in breech” but only 2 firms were under investigation for these possible breeches and one of those had the investigation dropped last year. It may be that Sesame was the other one and they obviously were fined. So out of the 80 agreements from 26 providers, 1 firm was deemed to be in breech (or maybe 2 if Sesame was not the other firm under investigation in 2013). Hardly startling stats is it? Is it just me or do they just like to see their names being put out there as they are thinking of moving and need some PR? Not that I am cynical in any way

  3. It is comment like this which make life very difficult for small firms. Out of all proportion to reality, broad sweeping exclamations like this leads to a greater expectation to be placed on us such as evidencing and monitoring (in this case) these inducements – you know modified procedures, annual reports etc. Compliance consultants then go overboard asking have you done this to prevent this or that, the FCA come up with good practices etc. which you are expected to comply with however illogical or OTT it may be. All of which rack up costs for the client and makes it harder for us to do our job.

  4. Really, it’s time the FCA stopped faffing about with this type of stuff and got on with sorting out issues of serious client and industry detriment. They could start with unregulated investments into SIPPs. As MartyY points out – this is a non-runner.

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