While I was on a the bus last week the FCA inducement paper finally landed in my shiny ipad inbox. I can confidently report that there are no surprises in the content. It’s actually quite a good read for a regulator’s guidance paper.
In GC/13/5, the FCA has focused its investigation on practices concerning technology development and maintenance, training, conferences and seminars, hospitality, promotional activity, meetings with advisory firms, management information and data and research services. As the regulator, in my humble opinion, does not know the inside workings of a financial adviser’s office, it commissioned research. Twenty-six life assurers and advisory firms were told to provide details of their distribution arrangements with providers and advisers.
The FCA reviewed 80 agreements and found more than half of the agreements in place could breach the inducements and conflicts of interest rules. This was no surprise as I put to you that the guidance rules are not specific enough.
The rules state that inducements should be “reasonable and proportionate; of a limited scale and nature; did not need to be relied on by the advisory firm in the future to continue to service its customers; and could reasonably not be expected to result in the channeling of business from the advisory firm to the provider”.
With no acknowledgement that the inducements rules at RDR implementation day should have been tighter, FCA director of supervision Clive Adamson says “the changes we made to the retail investment advice sector were designed to mark a step change in the way advice was given”. He went onto say “the findings of this research reveal that the actions by some firms have the effect of undermining the objectives of the RDR”.
I believe the objectives of the RDR need to be re-affirmed so the regulator can be held accountable. Original objectives of the RDR include building consumer trust and widening access to advice.
So am I concerned that many firms appear to be breaching the inducements rules?
I have not heard of any money, gifts, seminars, MI, marketing even trips abroad that make me raise an eyebrow. However, I do not like non regulated protection premiums being hiked artificially higher so the adviser can be paid more commission which is obviously detrimental to the client.
Is a trip abroad for a top producing salesman or introducer out of line with other industries? No it’s not. As long as everything is disclosed and clients are treated fairly there should not be a problem.
The QCF level four qualification benchmark has single handedly made the advice sector more professional and TCF as the over arching compliance guiding light has lifted standards and ethics. For centuries the life assurers and investment houses have helped their distributors (whether tied or independent) run their businesses and rewarded them accordingly.
If the regulator makes a big thing about inducements and levies big fines, along side the potential end of execution only, we might see the phoenix rise of the direct salesforce.
This will means thousands of highly sales trained salespeople with a narrow range of expensive products. They will naturally compete to sell more than their colleagues. No worries about inducements with a salaried salesforce.
Will this step change to direct sales teams be best for the public and the RDR objectives? I know you all know the answer to this.
Kim North (firstname.lastname@example.org) is managing director of Technology & Technical