Partnership and one other firm are being investigated by the FCA following a thematic review into inducement deals between providers and advice firms that could undermine the RDR.
The insurer issued a statement to the stock exchange last week saying it had received notification from the FCA that the regulator was investigating whether Partnership had breached rules on inducements and conflicts of interest. The statement followed a report in the Financial Times suggesting it was one of the two firms involved, which prompted a 7 per cent fall in Partnership’s share price.
The FCA reviewed 80 agreements between 26 life insurers and advice firms and found just over half of the firms had deals in place which could breach inducement rules.
These included payments by life insurers to adviser firms which appeared to be linked to securing product sales, insurers incentivising advisers to promote products and joint ventures which could create conflicts of interest and potentially lead to biased advice.
FCA long-term savings and pensions director Nick Poyntz-Wright says: “The RDR was trying to ensure that recommendations to customers and outcomes for customers are not influenced by payments from providers to advisers. This is an area we think really muddies the waters.
“There was quite a lot of anecdotal evidence that these sort of distribution agreements and service agreements were ramping up in the run-up to the RDR.
“To some extent it is the smell test – does it look and feel right? If it is a bit murky then I think that suggests there could be a conflict. Where there is a conflict firms must be able to show they are managing it effectively.”
The FCA has also set out concerns about contracts between providers and advice firms which generate a profit for the advice firm.
The regulator says while advice firms are be allowed to make a “reasonable profit” by charging a market rate for services supplied to providers, any provider contribution towards conferences and seminars should only cover the “relevant costs” incurred by the adviser firm.
Asked whether the rules also apply to support services firms, Poyntz-Wright says: “Support services firms provide a valuable service but if the adviser ultimately benefits from provider payments then everything we are saying needs to be taken into account because a conflict can still arise.
“Just because a payment has gone from A to B to C doesn’t stop that conflict.”
Page Russell director Tim Page says: “I have always been amazed at how some larger advice firms have been able to extract the sums of money they have from providers. It is good to see the FCA take action on this, not least because small IFAs have no access to these deals so this levels the playing field somewhat.”