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Two firms face FCA enforcement action over provider payments

by Jun Merrett on Sep 18, 2013 at 09:38

Two firms face FCA enforcement action over provider payments

Two firms face enforcement by the Financial Conduct Authority following a review into inducements which discovered potential rule breaches.

The FCA has published the findings of its review into whether firms continue to be influenced by inducements from product providers despite the retail distribution review (RDR) coming into effect in January this year.

The FCA asked 26 life insurers and advisory firms to provide information about their service or distribution agreements. In total it received and reviewed 80 agreements.

The regulator said that just over half the firms it sampled had agreements in place which it considered to breach its inducement rules and the objectives of the RDR.

It also identified concerns over certain types of joint ventures between providers and advice firms which were not consistent with the objectives of the RDR.

The review found that there had been a significant increase in overall spending by life companies for support services offered by some advisory firms in the run up to and following the RDR.

The FCA’s findings included:

  • Some payments by life insurers to advisory firms appeared to be linked to securing sales of their products; this included an increase in spending on support services (such as research or management information) provided by advice firms in the lead up to, and after the implementation of, the new advice rules. The FCA said that in many cases it did not think the business benefit of these increases was justified nor did it improve the quality of service to the customer.
  • There were financial arrangements in place with life insurers that incentivised advisory firms to promote a specific provider’s product to their advisers, creating a risk that advice would be influenced more by commercial decisions than the interests of customers.
  • The FCA also identified that certain joint ventures, where a new investment proposition is jointly designed by providers and advisory firms, could create conflicts of interest and potentially 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 its review found that some life insurance firms had arrangements in place which could influence advisers which was against the RDR’s aim of removing commission bias. The regulator added that many of the firms involved in the review have now changed their arrangements as a result.

Clive Adamson, director of supervision by the FCA, said the regulator wanted all firms to review and if needed, revise their existing arrangements and it will revisit this in the future to make sure necessary improvements have been made.

‘The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR,' he said.

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11 comments so far. Why not have your say?


Sep 18, 2013 at 09:44

Nothing new here, move on.

Oh, follow the money for more revelations.

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M E Too

Sep 18, 2013 at 10:15

How many years have we all known this has been going on?

Networks, Nationals & the larger lifecos have been serial offenders for years. They operate a pay to play system & any adviser who is part of this community is kidding themselves if they think they are anywhere near independent.

If its not an "approved" product, platform, fund its because your network hasn't had it's palms greased. Absolutely despicable behaviour & should have been stamped out years ago. It's a rotten system which inhibits innovation & stifles competition.

Network members should be demanding info on these deals because by not questioning best advice lists they become complicit in this corrupt system & indirectly they are perpetuating conflicts if interest.nignorance shouldn't be an excuse.

In my view you can only be independent if you are directly authorised & you make your own decisions.

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Sep 18, 2013 at 10:21

I once gave a national sales director of a large life office what for because of some poor service and I demanded some action on a clients behalf. This went to the top of the organisation and I was told in no uncertain terms to get back in my box...because the life office paid 'us' £000's each year which 'we' used to pay for conferences, staff incentives etc....Totally wrong in my opinion!

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alan mcintosh

Sep 18, 2013 at 10:26

You cannot have a rule for one and not the others. The FCA should continue taking tough action across the board.

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Steve Scott

Sep 18, 2013 at 10:29

Name and shame them!

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Jonathan Kirby

Sep 18, 2013 at 10:31

@ M E Too

Not all networks.

Financial have NEVER tried to influence where I place my business and as we pay monthly network fees that are simply based on turnover, not a percentage of commission/fees there is no incentive for them to do so,

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Sep 18, 2013 at 10:32

On the face of it, the FCA would appear to be more than justified in its actions and is sending out a very timely message.

Hopefully, this will buoy them on to investigate, and bring to book, a certain "upmarket" restricted firm that has gleefully stuck two fingers up at the RDR, and is paying its self-employed snake oil salespersons (sorry, 'partners') high levels of commission by another name.

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M E Too

Sep 18, 2013 at 10:40

@jonathankirby - good to hear there are some networks with integrity. Financial should advertise this - I'm sure there are advisers out there who would rather work in your sort of environment.

@steve scott - also publicise how much money has changed hands in the last 10 years. Enough to make your eyes bleed I suspect!

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Paul Howard

Sep 18, 2013 at 10:58

Can't Agree more with Steve Scott!

Although, we can probably guess who they are.....

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Simon Kershaw

Sep 18, 2013 at 11:17

The networks' cash for access is as old as the hills. If the FCA don't like it - and they shouldn't - they should ban it.

Of more interest, in the "New Model" nirvana we now inhabit, is the shareholding of advisers in platforms into which they place some/all of their investment business.

This is a clear conflict of interest which is directly contrary to TCF. It isn't new and it isn't rocket science. Why should an adviser get paid dividends from a platform onto which he places funds?

Invariably such arrangements involve platforms which charge more in bps than the lower cost platforms to which INDEPENDENT Financial Advisers should direct client monies.

The FCA have been made aware of this glaring hole in regulation for years, yet they choose to ignore it.


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david mann

Sep 18, 2013 at 11:44

Mark my words, some networks will fail now as they are only sustainable with life co payments - another Honister awaits and I wouldn't hang around waiting for the inevitable and the arguments over who owns the clients etc.

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