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FCA warns self-employed advice firms over misselling risks

The FCA has warned smaller advice firms operating a self-employed model are not taking its rules on sales incentives seriously enough.

In its latest review of sales incentive schemes, published this week, the FCA warns firms with staff or self-employed advisers whose pay is linked to business volumes are running a significant misselling risk and must ensure they comply with the guidelines.

The FCA says: “We accept many smaller firms will have 100 per cent variable pay because of the nature of their business models and we are not directing firms to adopt remuneration approaches that include fixed costs.

“However, it is important that all firms understand and manage the risks of misselling rising from remuneration based on 100 per cent variable pay.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Small firms cannot ignore this or they will be in trouble. If advisers only get paid when they sell something, there is a significant misselling risk, particularly in cases where the best advice is to do nothing. But the alternative is to put all staff on a contract, which could cost businesses a lot of money.”

Informed Choice managing director Martin Bamford says: “We have six advisers, two of which are self employed. The model itself is not a problem, it is whether firms recognise the risks and take steps to monitor them.

“If you have self-employed advisers who are doing their own thing and selecting their own providers, there is a massive misselling risk.”

Apfa director general Chris Hannant says: “Firms which operate this model need to ensure they document the risks it poses and how they have managed them.

“The FCA’s focus has until now been very much on large banks, so perhaps is not surprising if advisers think sales incentive rules do not apply to them.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. Julian Stevens 7th March 2014 at 1:59 pm

    Those sufficiently determined to justify their own existences can take virtually any scenario imaginable and concoct “risks” that “must be addressed” but, really, is there any evidence that these risks really exist? Given the amount of red tape that has to be battled through to render just about anything compliant these days, there’s hardly scope or time for cutting any corners so as to make way for that next allegedly unnecessary sale.

    Or are these “risks” just figments of the over-active imaginations of the FCA’s buggeration team, thought up one Friday afternoon over its fifth round of drinks down at the local? It’s tempting to view it just another example of the regulator’s mis-allocation of resources whilst the next motorway pile-up’s brewing somewhere just over the horizon.

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