The FSA deserves praise for the strong statement of intent evident in this week’s Dear CEO letter to insurers, networks and IFAs.
The correspondence expressed concern that deals are taking place between large distributors and providers to try and circumvent the regulator’s adviser charging rules.
The FSA highlights a number of areas- provider payments for training or conferences and to assist in the promotion of products or software development – where it believes the new rules could be compromised with payments being made to effectively secure distribution and influence advice.
The regulator will also be looking to clamp down on long-term distribution deals where significant payments have been made pre-RDR. The FSA may consider a portion of the upfront payment needs to be treated as if made post-RDR, potentially a costly unravelling of exercise for some.
Larger distributors are free to use their buying power to drive down costs for their clients. But they should not be allowed to use their size to broker payments from providers which may influence advice selection.
The FSA’s new charging regime would be doomed to failure from the start if it allowed larger players to continue to benefit from deals which breach the spirit of the rules.
Such payments could end up subsidising the costs of advice and putting smaller firms, and larger firms who did not embark on such deals, at a commercial disadvantage.
There is a big danger that certain arrangements, if left unchecked by the FSA, would allow the provider to retain its position as a possible advice influencer.
Such payments are likely to be more prevalent in restricted advice arrangements. Some firms appear to have forgotten the FSA’s intention of ensuring the same principals of adviser charging and removal of provider influence are seen in both the independent and restricted space.
In an interview with this week’s Money Marketing, Nick Poyntz-Wright, the author of the Dear CEO letter, says it is likely regulatory action will be needed to stamp out bad practice.
Certain distributors may warn this action is a threat to the sustainability of their business models, especially given the current economic backdrop and effect of the raft of regulatory change hitting the sector.
In such situations, their sustainability was already on shaky ground if they were relying on payments that were always going to be against the spirit of the FSA’s remuneration rules.