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Bad old days or valuable CPD? Beer fest jolly sparks anger

Bad old days or valuable CPD? Beer fest jolly sparks anger

This October a group of advisers will gather in the German capital Berlin to celebrate their success. They will be in town for the country’s famous Oktoberfest beer festival. This national event is steeped in tradition and customs such as men in lederhosen, a dirndl for women, not eating a Weisswurst sausage after midday, and having to finish your beer if you put a foot on the table.

‘Cheers!’ or, as the Germans say, ‘Prost!’

But not everyone is cheering the fact. As revealed by New Model Adviser® last week, these advisers will be at the event as a reward for the amount of client money they placed on a platform.

Indeed, our story ignited a fiery online debate and has put the issue of inducements squarely back in the spotlight.

80s Throwback?

National advice group and platform True Potential has offered advisers a place at its Berlin conference (during Oktoberfest), along with a free beer and a branded beer stein, if they had placed enough business on the company’s platform.

Firms that placed £4.25 million of new business on the platform between January and September this year are in with a chance of going.

According to a True Potential spokesman: ‘To ensure there are no risks to customers, we base our conference attendance criteria on a balanced scorecard that considers quality measurements as well as the level of business written.’

This did little to reassure some advisers who thought the deal belonged in the 1980s, not in the post-retail distribution (RDR) review world of 2017.

One adviser said it felt like a ‘two-tier’ profession.

‘It is like there are two completely different professions,’ they said. ‘It feels like we are pulling in different directions, which is a shame because we shouldn’t be.’

Yet this was not a view shared by all New Model Adviser® website visitors.

Bob Hulstrom, who started working at True Potential four months ago, asked his peers in the comments section of the article whether any of them had received freebies in the past year.

‘When was the last time you accepted anything from a provider? Was it lunch, dinner, drinks, a day out at the races, a case of wine, spirits, a free lunch and a free bar to go with it? All of which I have been offered in the past 12 months by providers as I am sure you have. It does not mean all my business went to [asset manager] Jupiter,’ he said.

Martin Bamford (pictured above), managing director of Surrey-based Informed Choice, said when he became an adviser he received many more invitations to ‘jollies’ than he had time to attend. However, since then the advice profession has worked hard to change the way it operates.

‘Product providers used to take us out on some fantastic jollies and I was part of that,’ he said. ‘I joined the profession in 2002, well ahead of the RDR. There was clay pigeon shooting, go-karting, trips to France to play golf, all sorts. I was getting five to 10 invitations a week back then.

‘Product providers had the option to do it and that was the way they got business,’ said Bamford. ‘But we are in a new world now and we have all tried so hard to make that transition post-RDR to move away from a product or commission-led sales environment to a profession. It is a real shame to see it going on.’

Bamford believes compliance with current inducement rules comes down to the offer of continuing professional development (CPD).

‘I remember one trip we did back in 2001 where we chartered a couple of coaches and went to Le Touquet in France to play golf,’ he said. ‘We did about 10 minutes of CPD on the coach and it became a CPD trip.’

Blurred lines

True Potential declined to share the details of the conference schedule with New Model Adviser®. However Mark Peddle, director at St Albans-based KD Wright Financial Services, has been to similar True Potential conferences in the past and said they were helpful.

‘The conferences are pretty good,’ said Peddle. ‘They have been doing them every year. I think they have to because of the various products coming out [on the platform]. They tell us about all of these.’

Bamford said there was a lack of clarity from the regulator around incentives.

‘It has introduced some guidance since [the RDR] around incentives and making sure remuneration practices are clear,’ he said. ‘But this would not be happening if the Financial Conduct Authority [FCA] simply made it clear and said: “No, [such and such] is not allowed to happen because it could lead to detrimental client outcomes”,’ he said.

The current regulation on inducements is detailed in COBS 2.3.1 and it states:

‘A firm must not pay or accept any fee or commission, or provide or receive any non-monetary benefit, in relation to designated investment business… other than a fee, commission or non-monetary benefit paid or provided to or by the client or a person on behalf of the client.’

However, it is less black and white on the topic of non-monetary benefits that can be offered to an intermediary from a third party. These are permitted as long as ‘the payment of the fee or commission, or the provision of the non-monetary benefit does not impair compliance with the firm’s duty to act in the best interests of the client.’

The regulator states this can only happen if ‘the existence, nature and amount of the fee, commission or benefit, or, where the amount cannot be ascertained, the method of calculating that amount, is clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, before the provision of the service.’

CPD event

True Potential did comment on the compliant nature of the trip and competition.

It said: ‘We are acutely aware of the FCA’s valid concerns that incentivising or rewarding someone for the sale of a particular product could lead to a poor consumer outcome.

‘However, this is a CPD event intended to support our advisers and to enable them to continue providing the best service possible to their clients.

‘Our compliance department has full oversight and we are confident we have complied with the rules and guidance from the regulator.

‘Attendees must adhere to stringent quality measurements that we impose, in line with current FCA rules and guidance in relation to inducements and incentives.’

Advisers questioned why the event should be restricted only to those who placed the most business on the platform.

The email to advisers from True Potential includes a ‘leaderboard’ and a ‘departure board’ (see below). The leaderboard detailed those who were close to achieving the qualifying amount to go to the conference, while the departure board featured firms that had already qualified. Some of those on the departure board had put tens of millions of pounds worth of assets on the platform before September.

Peddle’s firm KD Wright was ranked near the top of the firms on the True Potential departures board having written £21.7 million to the platform in the past nine months. Peddle said KD Wright had done its due diligence and as a business decided to use True Potential as its sole platform provider.

‘At the end of the day they are a platform provider and our chosen platform provider for putting our clients’ money on,’ said Peddle.

‘As long as you have done your due diligence you do not need to have a number of platforms, you can have just one where all your clients’ money is. As a business that is what we have chosen to do,’ he said. 

A commenter under the title ‘Nick Young’ on the New Model Adviser® website brought the issue back to how clients would view such rewards from providers, if they were aware.

‘Can you imagine your lawyer or accountant being offered a free booze-up in response for advising clients to take a particular course of action; one that is far more expensive than the market average?’ he asked.

(Free) food for thought

It is understandable that the more colourful aspects of our story would have frustrated, indeed infuriated, some IFAs. But it is also fair to point out that small freebies probably have no effect on advisers’ decisions.

Indeed, is it necessarily desirable to completely sterilise the relationship between providers and advisers?

However, the issue is not so much about the offer of trips or freebies, but the way they linked to client outcomes. In this case, what platform their assets end up on. Perhaps this debate will prompt a rethink of next year’s event. 

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