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FSA warns action is likely over circumventing RDR rules

Nick Poyntz-Wright FSA regulation

The FSA says it is likely certain distribution deals are in breach of RDR rules and it is probable the regulator will take action against them.

The regulator today sent a Dear CEO letter to 24 providers, networks and IFAs warning against payments which “work around” the commission ban under the RDR.

The regulator says its supervisory work has alerted it to “moves in the market which could undermine the RDR adviser charging provisions” and unfairly disadvantage advisers who are working hard to prepare for adviser charging.

Speaking to Money Marketing, FSA head of department, life insurance Nick Poyntz-Wright (pictured) says: “I think action probably will be necessary and that is why we have developed a heightened concern and that is why we have taken these steps to gather information.”

Poyntz-Wright declined to reveal what specific action the FSA could take but added there were a range of options available.

“We are determined to ensure the principles of the RDR are upheld and there are many options available in terms of the action we can take. This could be on an individual firm level or wider than that.”

He adds a number of recent deals seen in the market, particularly involving larger adviser firms, had drawn attention from the regulator.

He says: “What we are aware of is that there has been agreements in place between providers and advisers, particularly larger adviser firms, for some time that supported promotion and training activity of the advisers.

“What we are seeing is the scale and scope of these agreements has led us to think there is more to this than what we have seen in the past.”

The regulator is requesting each firm gives it information on any agreements in place, or being negotiated, alongside assurances they are compliant both with current inducement rules and, if the agreement continues after December 31, will be compliant with the new adviser charging rules.

The Dear CEO letter was sent to 24 firms in total who Poyntz-Wright said were chosen on the basis of their size and prominence.

In its letter to firms, the FSA says examples of inducements that are concerning include:

  • Providers contributing to the costs of adviser training, conferences and seminars. The FSA says these payments could be seen as an inducement as they have the potential to impair compliance with the adviser’s duty to act in the client’s best interests, and may not improve the quality of service to the client.
  • Providers paying advisers for help with promoting the provider’s retail investment products. These payments should reflect the cost incurred by the adviser or risk impairing the adviser’s to pay due regard to clients’ interests.
  • Payments from providers to distributors for the development of software as part of an integrated provider/distributor IT solution. Where costs incurred by the adviser go beyond those necessary to run provider software, that part of the cost may impair compliance with inducement rules.

The regulator says it has seen distribution agreements with terms of up to five years ahead of the RDR deadline. It says where all or most of the benefits are going to be used by the distributor after 31 December, a portion of the upfront benefits may need to be treated as if it was made after 31 December and so be caught by adviser charging rules.

The FSA says the scale of the payments it has seen under some agreements are such that these payments may be subsidising a distributor’s general costs, which then may subsidise adviser charges. The regulator says this creates a market distortion which gives some advisers an “unfair competitive advantage” over those who do not receive these kind of payments.

The FSA has asked insurers, networks, and IFA firms to confirm details of any agreements in place or that are currently being negotiated are compliant with current inducement rules and prospective adviser charging rules.

Last November a Money Marketing investigation revealed providers were paying significant sums to advisers as part of long-term distribution deals being agreed ahead of the RDR. In February Money Marketing revealed the regulator was set to probe the way distributors compile their restricted advice panels.

Since then the FSA has issued repeated warnings about some of the distribution deals being secured ahead of the RDR. In July FSA technical specialist Rory Percival said advisers should “exercise extreme caution” when agreeing distribution deals, and in August the FSA said it was looking at ways to reinforce its adviser charging rules.

Click here to view the FSA’s Dear CEO inducements letter in full


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Sometimes (no hold that) too often, the regulator behaves with what appears to be great stupidity.
    I just cannot believe it now wants to stop firms helping to fund training, conferences and seminars. How on God’s green earth does he think the majority completed our gap fill? Is he getting commission from the CII? Is he against the very thing that the RDR was incepted top promote – the better education of advisers. Does he really think we are that facile that we would automatically be swayed because we were invited to a seminar on the latest economic position? Do these regulators sit on their brains?
    Moreover it is a bit rich threatening in this way at all. The FSA dilly dallied until July before publishing much of the platform rules and even now they are not complete or ‘cast in stone’.
    To apparent senselessness can we also ascribe monumental brass neck? As it would seem that either the regulator is misquoted or really needs to pass these encyclicals through a decent PR firm first, so that the meaning is clear and they don’t therefore appear to make fools of themselves.

  2. For the last two years I have been a blench chairman of a regional branch of the IFP To put on any meeting cost money. I cannot see what is wrong with provide speakers or for that matter sponsoring meetings.
    Without the help of sponsors how are conference going to be managed.
    We have to have 21 hours of structured CPD learning without the help and resources of the companies we have not a cat in hells change of providing this
    Other professional bodies use sponsorship at meeting BMA ,Solicitors and Accountants ,Pharmacist , Veterinary Surgeons to name a few. There is even sponsorship at party political conferences. It is often an economical way professionals and their providers to meet
    Why all of a sudden does the FSA think it will be detrimental to clients. I could well understand that if you had a few days at Cowes watching the sailing. Since those jollies are limited to only a few people
    I hardly think an conference in a hotel with a coffee ,and bacon butty is going to influence the qualified professional adviser come 2013.

  3. ken170647 youtube 2nd October 2012 at 9:15 am

    It all makes perfect sense in the context of calling time on IFAs…

  4. The Mail On Sunday quoted Lord Flight`s statement last week that our of 35,000 IFA`s 22,000 had still not qualified for RDR. I think I know why.

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