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MM leader: The seismic effect of the FCA’s inducement rules

The FCA’s final rules on adviser inducements are set to have a massive impact.

Last September, the regulator found that despite the introduction of the RDR, payments were still being made by providers to advisory firms linked to securing product sales.

Half of the 26 life insurers and advice firms it reviewed had agreements in place potentially breaching FCA rules, with two firms referred to enforcement.

The regulator is right to be taking a tough line on payments which undermine the spirit of its new rules. The FSA had been clear throughout the RDR consultation that larger firms would not be allowed to circumvent the review and these payments were creating an unlevel playing field to the detriment of smaller firms.

The FCA’s final guidance sets out just how tough it is going to be, with the prospect of firms unpicking millions of pounds worth of deals.

The regulator says existing distribution agreements, some arranged over four or five years, will be affected with many having clauses allowing changes to comply with regulatory orders.

This will have a big effect on some large distributors already struggling to find their way post-RDR. Ernst & Young estimates providers paid £30m to advisers last year.

The final rules toughen up proposals on providers purchasing management information, data and research from advice firms. Advisers must not make a profit from such services, a move the ABI describes as a “significant new restriction”.

Guidelines around hospitality are also set to redefine the way many advisers are used to dealing with providers.

Invites to sporting events or other corporate hospitality will come under tight scrutiny with the regulator asking advisers to think about whether such invitations really benefit clients and if there are better way to benefit them.

Advisers may well ask whether there was a better way to benefit regulated firms and their clients than the £15,000 recently spent by the FCA on a £500-a-head “away day” and how this compares to the regulator’s desire to stop relatively small payments. However, the FCA has clear concerns these payments could lead to bias.

Such invites are common place across the business world (and journalism) as a way of cementing relationships but it looks as if there will be far less of them in financial services in future.

With two firms already in enforcement over inducements the FCA appears in no mood to allow the status-quo to continue.


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There is one comment at the moment, we would love to hear your opinion too.

  1. Wanna bet that this doesn’t affect or apply to any adviser firm with 5 RIs or less.

    As ever it’s the big outfits that bring us all into disrepute. Poor Network executives will now have to pay for their own tickets and green fees.

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