Better rates offered by fund groups to restricted advisers which are not available to direct investors could be a breach of Financial Conduct Authority Conduct of Business rules, an independent adviser has argued.
In an interview with FTAdviser, Mark Wooldridge, managing director of European Financial Planning, the IFA arm of listed advisory group European Wealth, said investors should have access to any offered preferential rates if they go direct to the fund group.
He added that offering bespoke, preferred rates to restricted advisers that are not offered to independent rivals or clients could breach FCA rules which demand that intermediaries do not accept any benefit for services offered, even where these are passed on to clients.
Mr Wooldridge said: “If providers offered a super clean share class to restricted advisers alone, it may be a breach of Cobs 6, as such a discount on the share class could be regarded as payment of a ‘benefit of any kind’ regardless of whether the benefits are passed on to a retail client.”
Cobs 6 states: “A firm must... not solicit or accept... any other commissions, remuneration or benefit of any kind in relation to the personal recommendation or any other related service, regardless of whether it intends to refund the payments or pass the benefits on to the retail client.”
Over the past two weeks it has emerged that fund groups could be seeking to only offer preferential share class rates to those able to “influence distribution”, and as such could be planning to negotiate preferential rates with restricted advisers.
This latest news gave rise to concerns that the increased transparency sought by the Retail Distribution Review could have further unintended consequences for the IFA sector and its clients - and could in the longer term turn financial advice into a commoditised “lookalike high street”.
This week Barclays published a report naming restricted firms including St James’s Place, Openwork and (soon-to-be restricted) Sesame as potential winners in the post-RDR world amid a fight for preferential or “superclean” rates.
Mr Wooldridge proposed that one way independent advisers could compete with their restricted neighbours who may boast better rates would be to tell clients to go direct to the fund group.
That way, he argued, the adviser would still receive their fee under adviser charging and the client might be able to secure whatever rates were on offer, while at the same time cutting costs by not paying a fee for a platform.
“Assuming a fund group would not want to undercut the distribution channels they control themselves to avoid paying a ‘benefit’ to restricted advisers, independent advisers could recommend a client goes direct to a fund group and charge a fee in the normal way.”
