Some large advice firms face a significant profits hit in the wake of the FCA’s clampdown on provider inducements, raising questions about their sustainability.
Last week, the regulator published new guidelines on inducements and conflicts of interest after a thematic review of 26 providers and advice firms found over half could be in breach of its rules and risked “undermining the objectives of the RDR”.
The guidelines cover payments from providers to advice firms for things like training, conferences and seminars, and hospitality, severely restricting the money that can change hands when these events take place.
Threesixty managing director Phil Young says the regulator’s tough stance on inducements will have a bigger impact on the advice sector than the RDR.
He says: “Providers will either say they are not making these kind of payments any more or they will drag their heels because the FCA’s guidance has put them in a much stronger negotiating position.
“The problem is for a lot of the big advice firms and support services providers these payments are a massive proportion of their total revenue, so they just cannot survive without it.
“If that gets taken away then they either have to put their prices up or they will go under.
“This will have a more dramatic impact on the market, in terms of being a big negative earthquake, than the RDR.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “People would be shocked at the size of payments from providers to advice firms.
“If these firms have to stand on their own two feet then most, without any contribution from providers, would be in a loss-making position.”