The FCA says providers and advisers could be forced to unpick major distribution deals over fears they are incentivising product sales.
The regulator has today published its final guidance on adviser inducements after it found providers were undermining the spirit of the RDR.
The FCA found providers offering “extravagant” hospitality, support services payments and exclusive distribution arrangements that were creating conflicts of interests.
Ernst & Young estimates advice firms have up to £30m relying on these types of provider payments. The FCA has given firms three months to make changes.
The guidance will mean existing distribution deals will have to change where they are in breach of the guidance, even if contracts have been signed beyond the three month deadline. The FCA says many distribution deals include clauses that can alter the contract to comply with regulatory changes.
An FCA spokesman says: “We expect firms to review their agreements to make sure they comply with our rules.”
It is understood major networks have millions of pounds tied up in existing deals that may have to be altered in the next three months to comply with guidance.
Threesixty managing director Phil Young says: “This guidance will have a colossal impact. It does not just apply to independent distribution but restricted too. Arguably it could be even tougher to prove it for restricted deals.
“Some networks are not financially viable in the long-term without this sort of revenue stream. There is not a lot of cost to cut and they cannot jack up prices to cover a big gap because of the amount of uproar it would cause. It begs the question: how are they going to survive?”
The paper also toughens up proposals on providers purchasing management information, data and research from advisers. Distributors must not make a profit and providers must derive “genuine business benefit”.
Association of British Insurers head of regulation James King says: “We are surprised the FCA has used this guidance to introduce a significant new restriction on payments for services provided by distributors – such as management information on customer behaviour.
“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.”