Advice firms accepting loans from Intrinsic under its practice buyout scheme should be wary of breaching the FCA’s inducement rules, say compliance experts.
It is understood the FCA has written to providers to request details of any loan arrangements they have with advice firms.
Last month, Intrinsic announced it will make loans available to appointed representatives looking to make acquisitions. Both buyers and sellers must be part of the network to be eligible for the multi-million pound scheme.
It said that financial backing from its parent company Old Mutual Wealth will allow it to offer the loans at “preferential rates” of 3 per cent above Libor.
The FCA’s inducement rules state that a product provider should not provide credit to an advice firm unless it is done on commercial terms and the provider is not able to exercise any influence over the advice firm.
Intrinsic says the loans are made by itself, and not by Old Mutual.
However, the terms of the scheme, seen by Money Marketing, state: “Old Mutual Wealth has agreed to provide the funds that enable loans to be made available on very competitive terms.”
Threesixty managing director Phil Young says: “Development loans from providers need to be offered at standard commercial rates to avoid the inducement rules. Intrinsic aren’t a provider, but if the funding in reality comes from Old Mutual you’d have to question whether this was in the spirit of the rules.”
The Phil Billingham Partnership director Phil Billingham says: “The firms themselves state that the reason Intrinsic are able to do this is because of the financial backing of Old Mutual, so this seems to be a semantic point.
“I would be concerned if the firm receiving the cash was an IFA, and was still holding themselves out as an IFA after taking the cash. The terms of those deals would warrant some close scrutiny to see if there was the potential to pervert the market.”
Another compliance consultant, who does not wish to be named, says: “An Intrinsic member who has taken one of these loans should be extra diligent in its record keeping if they have placed products with Old Mutual.”
An Intrinsic spokesman says: “The loan agreement is between Intrinsic and the adviser and, as part of a financially strong group, Intrinsic is able to offer the loans at a competitive market rate. All decisions are made by Intrinsic and not influenced by Old Mutual Wealth.”