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FCA inducements rules could unpick multi-million-pound distribution deals

Regulator says existing deals will have to be unravelled if they are found to be in breach of the guidance.

The FCA says providers and advisers could be forced to unpick major distribution deals over fears they are incentivising product sales.

The regulator published its final guidance on adviser inducements last week after it found providers were undermining the spirit of the RDR.

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.

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?”

PwC regulatory centre of excellence consultant Andrew Strange says: “The FCA will be reviewing firms and asking individuals to sign attestations showing they are complying. That has a big impact on the personal liability of senior staff.”

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