The RDR has not put an end to deals between advisers, DFMs and platforms
You may think the FCA has done a lot to tackle conflicts of interest in advice over the years. Obviously the biggie when it comes to addressing advice bias was the RDR, and as part of that we have had many related headlines about pay to play deals between providers and big advice firms, inducements and the subsequent crackdown on corporate hospitality.
But there are arrangements which the FCA has yet to review, such as advisers owning stakes in the investment proposition, discretionary fund manager service or platform they are recommending.
Many of these will be above board as long as they pass two tests: 1) Has the conflict of interest been clearly disclosed; and 2) Is this the most suitable investment for the client.
Clearly, some conflicts are an inevitable part of business models that are focused on building assets in order to drive a sale or capital event in the not-too-distant future. I doubt the disclosure on that front is ever that explicit.
But there are also advice firms that, while acknowledging there is a conflict to be managed, argue it is about holding providers to account and delivering a better service to clients in the longer term.
Even then, advisers who are disclosing their conflicts still say they have sometimes felt a little uncomfortable about the whole thing.
The sad thing is the more you go looking for conflicts of interest in advice, the more you find them. In the weeks since Money Marketing first wrote about deals between advisers and platforms, there have been numerous examples that have been sent our way.
These include arrangements which offer advisers discounts in exchange for committing to certain services, or deals on guaranteed revenue.
All these will take longer to investigate. And that is before we get to the world of mortgages and insurance, which the RDR passed by. More on that later this month.
“The sad thing is the more you go looking for conflicts of interest in advice, the more you find them.”
Sometimes conflicts of interest may not be so apparent, but are there nonetheless. Contingent charging has been cited as one such example, and we see that crop up more and more in relation to transfers for defined benefit schemes.
A common theme that comes up in conversations around conflicts is suitability and what is best for the client.
Firms should also ask themselves whether they would be comfortable explaining a particular arrangement to another adviser. That is the acid test right there.
Natalie Holt is editor of Money Marketing. You can follow her on Twitter @Natalie_Holt_MM