FCA acts over payment breaches
Published 18/09/2013 | 11:41
Two firms are facing enforcement action after the City watchdog uncovered evidence that financial advisers and product providers were flouting new rules banning commission payments.
The Financial Conduct Authority (FCA) is launching a crackdown on financial inducements between product providers and financial advisers after finding some firms were continuing to receive payments that could lead to biased advice.
Expensive overseas seminars and training trips, as well as paid-for meetings with senior management teams in adviser firms, were among the "serious concerns" highlighted by the watchdog.
Two firms face enforcement by the FCA after it uncovered potential breaches of its rules, while it said more than half of the firms it reviewed had agreements in place that could undermine Retail Distribution Review (RDR) rules that came into effect this year banning advisers from receiving commission payments from product providers.
Clive Adamson, the FCA's director of supervision, said RDR was designed to "mark a step change in the way advice was given".
He added: "It signalled the end of advice that might be influenced by the commission payments made by product providers to advisory firms, and the start of a new era of trust and transparency between a firm and its customers.
"The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR."
The FCA reviewed agreements in place with 26 life insurers and financial advisers and found incentives in the form of large payments made for spending on support services such as research and management information, IT systems, staff training events and hospitality.
It was also forced to step in and halt some joint venture deals, where advisers and providers had worked together on new investment propositions that could lead to biased advice.
In one example, the advisory firm was paid substantial upfront fees by the provider with its profits increasing the more it channelled business into the joint venture.
The FCA said many firms had since made changes after it flagged up concerns following the review, and vowed to carry out a follow up investigation to ensure bad practice has been stamped out.
It has thrown open the issue to consultation in the industry and released proposed guidance on payments between advisers and providers.
The Association of British Insurers (ABI) called for clearer rules on payments following RDR.
Maggie Craig, director of financial conduct regulation at the ABI, said: "Today's publication is a good start, but we do believe that more clarity regarding FCA expectations in this area would be helpful in some areas, particularly around initiatives such as joint ventures."