Advisers look likely to be banned from accepting provider hospitality to sports matches and other entertainment under the FCA’s crackdown on inducements.
In its final guidance on retail investment advice inducements and conflicts of interest, published this week, the regulator sets out acceptable practice.
It published a list banning overseas trips, “extravagant” food or drink, overnight stays and trips to sports matches. Make no mistake, the FCA wants expensive entertainment for advisers to be a thing of the past.
The FCA says that before accepting any provider entertainment, advisers must now ask themselves three questions: Is it reasonable? Does it benefit the client? Is there a better way of benefiting clients?
For example, the guidance means advisers are banned from attending sports matches in a corporate box because of the significant cost.
The FCA has already cracked down on Lloyds Banking Group’s “champagne bonuses” and “grand in the hand” sales incentives. This is the same principle at work – any expensive incentive has the potential to drive product sales and therefore increase the risk of bias.
The financial services sector is one the biggest sponsors of sports and entertainment and many firms use the deals for extensive corporate hospitality.
Aberdeen Asset Management sponsors the Cowes Week sailing event and invites large numbers of advisers (and journalists) down to the South Coast each summer.
Aegon is a big sponsor of UK tennis, taking IFA clients and journalists to Wimbledon and the Aegon Championships.
Royal London sponsors England’s one day international cricket while LV= sponsors the county championships.
This is a random selection and there are many more examples to choose from. Providers will surely be asking whether it is worth risking the FCA’s wrath by inviting advisers to such events.
Whilst not directly relating to sponsorship, the FCA has made its feelings on inducements perfectly clear, with Partnership and one other firm being investigated by the FCA’s enforcement team.
Aberdeen Asset Management says it is looking at its arrangements following the FCA paper. Scottish Life, part of Royal London, says it is too early to assess the impact but says it will conduct a “thorough review” of its current internal rules. Aegon says it is looking at the paper but it is too early to assess its impact.
This ban could have a big impact on adviser-provider relationships. They will be far more formal, documented affairs related totally to business with no frivolous entertainment.
For example, would drinking alcohol with a provider ever be described as benefiting your client? Is a steak and a mid-priced bottle of wine “proportionate” for a lunch?
The FCA will argue it does not intend to ban all adviser-provider contact out of the office, just the lavish trips, but its new guidance could have a dramatic effect.
Syndaxi Chartered Planners managing director Robert Reid says: “If you have a good gift register and a good new business register then the FCA can check if there is a link between the two. This could be solved by some form of combination of the two registers to spot trends. Not everyone is influenced by hospitality and I certainly am not.”
The FCA has also opened itself up to the charge of hypocrisy, after its board attended a 48 hour “away day” at a five star London hotel at a cost of almost £15,000.
Surely £500 a night would constitute “extravagant” under its own rules. Does this lavish trip, which the regulator says is “standard practice”, create an inducement for the FCA to raise fees?
Samuel Dale is politics reporter at Money Marketing – follow him on Twitter here
FCA guidance on good hospitality practice
- The event at which the hospitality was provided was located in the UK.
- Adviser attendance is not based on criteria that incentivise poor behaviours such as business volumes.
- The event is designed for business purposes, such as product training, to boost advisers’ customer service.
- Payments for food and drink are proportionate, not extravagant and any overnight accommodation are only paid for where necessary.
- Providers calculate the ‘per head’ costs of the hospitality and check the reasonableness with the compliance department.
- Promotional prizes are not extravagant and linked to increase knowledge of a provider’s products or services.
- Gifts are not extravagant and were not based on criteria that incentivise poor behaviour.
- Providers keep a regularly reviewed log of all hospitality and gifts provided to advisers over a specified period to ensure some do not receive too much.