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FCA to clampdown on hospitality for advisers
by Michelle Abrego on Jan 16, 2014 at 12:32
The Financial Conduct Authority (FCA) has set out finalised guidance on how advice firms should deal with conflicts of interest caused by receiving provider payments.
The guidance also added a ‘reasonable value test’ to hospitality payments, to ensure that advisers avoid ‘extravagant’ promotional prizes and gifts.
The FCA has said that financial advisers and product providers share the responsibility of managing potential conflicts of interests when receiving and making payments under service and distribution agreements.
The final guidance on inducements states that payments from product providers to advisory firms should be based on reasonable reimbursement for the costs incurred by advisory firms
The regulator’s inducement rules ban the ‘provision or receipt of any fees, commissions or non-monetary benefits that relate to designated investment business carried for a client’, which:
- impair the firm’s duty to act in the best interests of its client
- are not designed to enhance the quality of service provided to a client
- are not clearly disclosed to clients – with some exceptions for non-MiFID business
In September 2013, the FCA published findings of a review into provider payments which examined whether firms continued to be influenced by inducements from product providers despite the retail distribution review (RDR) coming into effect in January 2013.
It reviewed 26 life insurers and advisory firms and 80 agreements and found that just over half the firms it sampled had agreements in place which it considered to breach rules and the objectives of RDR.
Clive Adamson, director of supervision at the FCA, said: 'The rules on inducements and conflicts of interest are not new. However our review made it clear there were certain practices that did not stand up to scrutiny.
'In the guidance published today we are helping firms better understand our expectations. Now it is for firms to make sure any payments are legitimate, are in consumers’ interest and that potential conflicts are well managed.'
In September 2013, the FCA also said two firms faced enforcement over breaches of inducement rules, one of which was later revealed to be enhanced annuity provider Partnership.
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