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FSA warns joint distribution ventures could undermine RDR

FSA 480

The FSA has raised concerns that joint ventures between providers and advisers could undermine the objectives of the RDR.

Speaking at an Association of British Insurers RDR conference in London today, FSA head of investment policy David Geale discussed the Dear CEO letter the regulator sent to providers and advisers last month warning against payments which work around the commission ban. He said the FSA has seen “substantial” deals agreed between providers and networks which ran counter to the spirit of the RDR.

Geale said the aim of the RDR was to create a level playing field where advisers can compete based on service rather than the deals they can get with providers.

He said: “This may include also joint ventures between firms in the distribution chain, where the key intention of the joint venture seems to be to secure distribution. We have seen a number of such deals where participation in terms of financial contribution or shareholding, or indeed financial returns coming out of that joint venture, appear to be potentially one-sided.”

Geale said the regulator would need to look at these kind of arrangements and “take a view”.

He added: “On the face of it we would view such arrangements as potentially having the ability to undermine the outcome the RDR is seeking to deliver.

“What we prefer to see is viable, financially robust adviser firms, and we expect many firms will be able to achieve this on their own merits. We do not want it to be achieved through subsidies, or backdoor commissions, or whatever you choose to call them. Even well run firms make losses from time to time, there is no rule against that, but viable business models should be built on the transparency and the clarity the RDR provides.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Like what in particular. Give us an example…

  2. If FSA wants to achieve this, it has to change the allowable inducements rules (COBS2, MCOB2 and ICOB2). As long as the FSA handbook allows payments that create no conflicts and reinforces the point by illustrating the types of payments that can be made by listing “indirect benefits” in COBS2, what does FSA expect?

    It goes further, many of these allowable inducements need not be disclosed to consumers.

    FSA stopped soft commissions in wholesale and fund markets. Why are these payments allowable when they are in principle the same mechanism as soft commissions.

  3. Had the FSA had anyone in charge with an ounce of common sense they would have foreseen the market would look at alternative distribution models to get around the proposed distribution model.

    I don’t know of any other industry where these type of Gestapo tactics are employed.

  4. Provider buys a Network. End of conflict of interest. Same result……it is called Market Forces.

  5. ….”Even well run firms make losses from time to time, there is no rule against that….” There certainly is a rule against it Mr Geale. An FSA Rule called capital adequacy. In these times if a firm cant get finance to stay afloat whaen it makes a loss, it will have no choice other than dip into Capital stashed in the Cap Ad fund. It is therefore technically in default and thus breaking the regulatory rules. Does anyone in FSA actually know what they are doing or talking about

  6. RegulatorSaurusRex 27th November 2012 at 3:51 pm

    From a former John Charcol adviser working for an insolvent regulator that has no idea what RDR is all about.

    Mind you, does anybody out there know what RDR is all about?

  7. “What we prefer to see is viable, financially robust avdviser firms, and we expect many firms will be able to achieve this on their own merits.”

    Two things…

    First, what does it mean by ‘prefer’, that sounds like it’s optional?

    Secondly, if ‘many’ firms can, there must be an expectation that some firms can’t. How many are there in this category and what is the FSA going to do about them?

  8. It does make one wonder how an individual who joined the FSA 5 years ago, having previously been a bank adviser, can now be Head of Investment Policy at the FSA.

    In a similar way that I wonder how Rory Percival, formerly an IFA and latterly compliance director at the predecessor of now defunct and censured Thinc, is well placed to shape policy on Platforms? When someone expresses their ambitions as retirement in a couple of years and some non-execs thrown in it does raise interesting questions.

    There aren’t many people who are successful in their line of work who go from Private into Public sector. Only if they have reached the pinnacle of their chosen profession (usually made their money – Hector for example) and have far lordier (possibly) ambitions.

    What you end up with are non-commercial people with a point to prove to the industry in which they didn’t succeed.

  9. @Bert Poppins 10/10 on FSA staff!

    General query: I am told that SJP is telling its staff “commission continues” after 1.1.13 when apparently even commission like payments a re banned for everyone else.

    Can anyone give me some facts please?

  10. Becoming a headcase IFA 28th November 2012 at 8:46 am

    We all know who the pro RDR people are, but why are they so quiet at the moment?

  11. @ Bert Poppins

    Fantastic point on the FSA staff

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