The FSA is expected to confirm a hardline approach to inducements in the coming weeks to ensure provider payments to adviser firms for certain services do not contravene its RDR adviser charging rules.
The move follows a Dear CEO letter to providers and big distributors in October setting out the regulator’s concern that firms may look to circumvent the RDR through excessive payments, related to services like training and events, which look to secure distribution.
The FSA’s concern is understandable. Such inducements would completely undermine its RDR goals, with provider commission simply rebadged as a different form of payment.
Previous Money Marketing investigations have highlighted providers paying significant sums to distributors as part of long-term distribution deals arranged ahead of the implementation of the RDR. The FSA must ensure its rules do not allow the continuation of excessive payments from providers which look to influence the adviser.
The regulator is likely to rule that all provider contributions towards training, conferences or seminars are provided on a cost natural basis. This is a welcome move.
Despite the tone of last year’s Dear CEO letter, Money Marketing has seen recent brochures from a number of big distributors which suggest they are still looking to make a significant profit from these type of provider payments.
The FSA is also expected to explore the possibility of extending its new rules to include support service firms. Again the regulator’s thinking here is understandable
Many big distributors have a support services arm as part of their offering, or could set one up as a way of getting around the new rules if the opportunity for regulatory arbitrage arose.
Whether the FSA would be able to enforce such a ban on support service firms, alongside networks and IFAs, is a question the regulator is currently grappling with and may explain the delays in the further guidance that was expected earlier this year.
In private, certain big distributors have raised concerns over the impact of the new rules, given the testing backdrop of other RDR costs and general economic uncertainty.
However, the FSA’s direction of travel on this issue should have been clear to them for quite some time and factored in to forecasts.
Allowing certain bigger firms to circumvent the RDR would create an unfair commercial advantage and undermine the huge efforts made by the rest of the advice profession to abide by the new charging rules.