Leader: FCA wants providers’ necks on the block on inducements

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

When defending the use of inducements, whether this is via distribution deals or lavish corporate hospitality, providers argue “this is the way business has always been done”. In our cover story this week, one provider somewhat outlandishly claims “we could be damaging customer outcomes” by cracking down on inducements. That is dubious at best.

The culture of provider bungs to advisers seems to be alive and well, despite the various rounds of guidance the regulator has issued on the subject.

The FCA and its predecessor have been predominantly concerned with bias and conflicts of interest. Setting aside the “pay to play” deals of Sesame fame, advisers I speak to are often affronted by any suggestion an invite to a major sporting event would colour their product recommendations in any way. Many advisers keep meticulous corporate hospitality logs, with separate information on business volumes which shows no correlation between the two.

The same is true of journalists. Editors and reporters can be treated to press trips abroad, but this does not equate to reams of positive coverage for the provider hosting the trip. Or at least, it shouldn’t.

Unfortunately, there are journalists who will run glowing pieces about why now is the time to invest in China or the US after returning from a fund manager-sponsored jolly. (Happily, these journalists are not employed by MM). Equally, as much as it will gall the many principled advisers, there are likely to be some firms who are being unduly influenced by providers.

Recent letters sent to a number of major providers by the FCA clearly spell out that tacking seminars onto corporate hospitality, and training costs that significantly outweigh the cost price, are unacceptable business practice.

After years of decreeing rules from on high, the FCA is now insisting providers put their necks on the block, requiring them to sign compliance guarantees, carry out reviews and testify that their businesses are fit for purpose. Firms that continue to push the boundaries of what is acceptable will ultimately find themselves across the board table from FCA enforcement.

Yet this is not just about household names. Little-known, obscure providers are also at it. One marketing promotion being circulated offers no less than a helicopter chauffeur service as part of a day at Silverstone, which could be yours in exchange for ploughing a mere £500,000 into a particular investment scheme. Clearly the FCA has a lot more work to do.

Natalie Holt is editor of Money Marketing. Follow her on Twitter: @Natalie_Holt_MM