The recent FCA final guidance on inducements and conflicts of interest (FG 14/1) has certainly caused a stir and led to action from providers and distributors alike.
The paper is clearly aimed at the retail investment advice market in the wake of the RDR, but as I go around the mortgage market I have heard several comments along the lines of “it doesn’t apply to us”.
For the first time, however, this guidance is very explicit on what is and what is not acceptable. And while it may talk about retail investments, I believe it sets the compass on the direction of travel for all potential inducements that may lead advisers into conflict.
The paper raises awareness to all of us that in business, conflicts of interest do arise. Advisers must ensure that they are not conflicted when acting in the best interests of their clients and that they are not diverted from those best interests by providers offering inducements in the form of hospitality, training events, conferences or non-cash items such as gifts.
But let’s be clear. Advisers can accept all of the above under these new rules, but they must first consider whether it is appropriate for their business. If so, there needs to be sensible governance and systems and controls around how advisers participate in such activities in future.
If you have not got a clearly defined policy in your business on, for example, the hospitality you accept (and offer) together with a log of all such events attended, then you need to get one in place by 15 April.
In the mortgage market since the credit crunch, many lenders cut back significantly on budgets for all events across the board. But a return to some of the practices of the past will not help any of us as lending comes out of recovery. We need to ensure that a professional mortgage market, underpinned by a very sensible mortgage market review, is not tarnished by ignorance of this new direction.
In response to observations that the paper was silent on mortgages and protection markets, the FCA guidance is quite clear: “Payments provided in relation to mortgage and protection business are still subject to the Principles for Businesses including Principle 8 (conflicts of interest), and so similar considerations apply to such payments as outlined in this guidance. We expect firms to act responsibly and not attempt to circumvent this guidance by soliciting and making excessive payments for other product lines.”
The last five years in the mortgage market have been some of the worst we can all remember. Let’s make sure we keep our standards high as we transition from the past and move into a more buoyant environment with many opportunities for mortgage firms, lenders and practitioners.
John Cupis is managing director of mortgages at Sesame Bankhall Group