The FCA has published the findings of a thematic review into arrangements between providers and adviser firms which could undermine the objectives of the RDR.
In a guidance consultation on inducements and conflicts of interest, published today, the regulator says over half of the 26 life insurers and advice firms it reviewed had agreements in place which could have breached FCA rules.
The FCA reviewed 80 agreements between adviser firms and insurers, as well as agreements between adviser firms and platforms and fund managers, and agreements between insurers and distributors such as building societies, employee benefit consultants and compliance consultants.
The FCA has set out examples of what it found:
– One advice firm secured substantial payments from a number of life insurers for providing support services such as promoting their products and arranging training events. These insurers, and only these insurers, were chosen for the advice firm’s investment panel. Panel selection gave “significant leeway” to choose the insurers that were buying services, and to dismiss other providers that offered suitable products but did not buy support services.
– One insurer “significantly increased” its spending on support services offered by an advice firm with little justification of the business benefit or the amount paid. The terms of the agreement provided for a sizeable increase in services bought over the following years.
– One provider and advice firm planned to set up a joint investment venture. Under the terms of the venture, the provider would have paid a substantial upfront payment to the advice firm, with the advice firm getting a greater share of the profits, which also increased with the level of business chanelled to the joint venture.
The FCA questioned whether the advice firm could be considered as independent as a result of recommending funds it had a role in manufacturing, and prevented the venture from going ahead.
The regulator says any firms considering such joint ventures should discuss these plans with the FCA.
The regulator also cited two examples of good practice, including an advice firm that could demonstrate a provider payment for developing IT systems covered the cost of integration only. Some firms were also able to demonstrate in detail that provider contributions to training costs were genuine and reasonable.
Two firms have been referred to the FCA’s enforcement team over their inducement arrangements.