Should providers stop providing hospitality and other jollies to financial advisers? The question has arisen as a result of the FCA’s latest guidance on retail investment advice, inducements and conflicts of interest.
Last week, the regulator published FG14/1, in which it set out acceptable practice on the issue. According to an excellent analysis by Money Marketing reporter Samuel Dale, overseas trips, “extravagant” food or drink, overnight stays and trips to sports matches should be banned.
Sam says the FCA’s message is that “before accepting any provider entertainment, advisers must now ask themselves three questions: Is it reasonable? Does it benefit the client? Is there a better way of benefiting clients?”.
For both providers and financial advisers, the news will hardly have been unexpected. For many years, freebies formed an excessive part of the financial services scene.
Almost as striking as the ubiquity of the jollies won offer was their uniformity. I remember my one and only rugby game at Twickenham many years ago and the place was positively heaving with advisers and their hosts from life companies and fund management firms – and not a few journalists, it must be said.
What is both interesting and disappointing about the FCA’s document is how it doesn’t talk about all freebies, just the ones extended by providers to advisers.
Barely a decade ago Inter-Alliance, once one of the UK’s largest independent firms of IFA, took hundreds of its staff and their spouses on a week-long paid trip to Mauritius at a cost of up to £800,000.
The “conference” was organised for up to 200 of the group’s top-performing advisers, several managers and three board members, plus their husbands or wives.
Attendance was open to any adviser who achieved £100,000 in commission earnings the previous year. For some IFAs, the sales target was even smaller: advisers in one firm taken over by Inter-Alliance were told they would qualify if they met a pro-rata annual target of about £42,000.
The trip took place only weeks before Inter-Alliance issued a profits warning to the Stock Exchange and raised more than £12m from its shareholders, most of them life companies. Months earlier, the company had raised a further £15m after admitting it was losing up to £2m a month.
Yet Inter-Alliance’s trip was justified by its marketing director Carey Shakespeare. He told me: “Sales incentive schemes are a recognised mechanism for encouraging and rewarding exceptional performance in a sales environment.”
After I wrote about the trip he claimed advisers were lining up to join Inter-Alliance. Well, given what happened to the company subsequently, if they did it was like cows queuing up to enter an abattoir.
Hopefully, some of these excesses will have fallen away over the past decade, although I do wonder at the potential for some large networks and national IFAs to continue to “incentivise” their commission-paid restricted advisers. At the core of any such incentives is the notion that product sales and not advice are key to the relationship between advisers and their clients.
In fairness, personal finance journalists are not exempt either. Shortly after I started working at Money Marketing 22 years ago I took a call from someone working for Scottish Provident, the life insurer subsequently swallowed up by Abbey National.
My caller had an offer to make: would my partner and I like to spend an all-expenses paid weekend in Edinburgh as guests of ScotProv? The trip would be taking place at the same time as the festival in August, so tickets to some of its shows would also be available. So it was that a few months later we found ourselves on a plane to Scotland.
A year later, by then working on a national newspaper, I was asked to write a story which, while not “hostile” to Scottish Provident, highlighted one of its life funds’ extremely poor performance.
When I called for a reaction, the company was totally professional: there was no attempt by its spokespeople to “call in a favour”. The story was written as it always would have been, regardless of whether I had enjoyed ScotProv’s hospitality.
Throughout that whole experience, however, I remember finding it hard to separate my writing from the fact that I’d had a freebie out of Scottish Provident.
Luckily for me, the paper I worked at had a policy whereby journalists paid for all overnight trips. Any other hospitality could only be accepted if it was editorially justifiable or if the cost could potentially be reciprocated through our own expenses. As a rough guideline, a cinema trip or a meal were acceptable, a weekend away was not. I’ve tried to operate by similar rules since then.
I accept that many other journalists disagree. They feel able both to accept trips around the world while still writing fairly and honestly about the companies that pay for them to go there.
But my own instinct would be for a central register of any hospitality worth more than, say, £50 to be kept for both advisers and journalists. It should be accessible to all members of the public. After all, if it’s good enough for IFAs, it makes sense for the rest of us too.
Nic Cicutti can be contacted at email@example.com