Advisory firms and life companies are “undermining” the principles of the Retail Distribution Review by continuing to solicit and receive “inappropriate” payments that circumvent the ban on commission, the Financial Conduct Authority has found.
According to guidance published this morning by the FCA, life firms which offer training, hospitality or IT services may be in contravention of the principles of RDR due to the influence these benefits would have on advisers’ decision-making.
In some service or distribution agreements, the regulator found a correlation between how much the provider paid or offered advisers and subsequent placement of business on panels used by advice firms. It also found payments in these areas by many life insurers had increased substantially post-RDR despite questionable benefits to consumers.
Following the disappointing findings, the FCA has launched guidance that it says will help firms to avoid potential conflicts of interest.
Following early action by the regulator, many firms have allegedly changed their ways. However, two specific firms could be subject to enforcement action after the FCA identified potential rule breaches.
Concerns were raised last year over the commercial arrangements that underpinned the formation of provider panels, especially those used by restricted firms, which many suggested could undermine the priciples of the RDR’s move away from commission bias.
Not only could the offerings by some providers incentivise advisers to use these firms, advice firms were also found to have inadequate controls in place to avoid conflicts of interest created by certain service or distribution agreements, the FCA found.
The regulator also raised concerns about certain joint venture arrangements between providers and adviser firms.
Clive Adamson, director of supervision at the FCA, said: “The changes we made to the retail investment advice sector were designed to mark a step change in the way advice was given.
“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.
“Most the firms involved in the review have already made changes, which are welcome, but we want all firms in this market to review and, if necessary revise their existing arrangements. We will revisit this area in the future to check that the necessary improvements have been made.”
The guidance consultation is open until 18 October.
