Some firms are using the Financial Conduct Authority’s inducement guidance as an excuse to cut costs by pulling out of events despite there being no outright ban on training, conferences or hospitality if they serve the best interests of clients, a compliance firm has said.
The FCA’s finalised guidance, published in January, reiterated the five broad forms of inducement at particular risk of creating conflict of interest that had been identified in a guidance consultation last year.
These included long-term agreements between advice firms and product providers; non-monetary benefits including gifts, promotional competition prizes and joint marketing initiatives; IT systems and upgrades; hospitality; and payments for access to the management team.
The FCA’s inducement guidelines have caused Aviva, amongst others, to pull out of all hospitality events for advisers.
James Dingwall, director of compliance firm Thistle Initiatives, told FTAdviser that some providers are using the FCA’s guidance “as an excuse to reduce their costs”.
He said: “Interestingly, however, the FCA’s guidance does not pose an outright ban on the provision of hospitality.
“In fact the FCA rules which are unchanged by this guidance state that a provider may give, and an advisory firm may receive, hospitality, gifts and promotional competition prizes of ‘a reasonable value’.
“As with other payments, any such payment should enhance the quality of the service provided to the client. The FCA also provide guidelines on good practices which it believes assist firms in achieving the ‘reasonable value’ test.”
Mr Dingwall added that key point the FCA states is it does not expect to see payments which result in, or could have the effect of resulting in, a channelling of business to a particular product provider.
He said: “If firms are not clear whether making or receiving a payment will be in line with the inducements rules, the payment should not be made or received.
“So whether it is training, conferences or hospitality this is possible to continue if it is not to serve this purpose and is ultimately to serve the best interests of clients.
“So whilst so called training events over a glass of Pimms at Henley Regatta may be out, (should they ever have been in?), firms should not be deterred from genuine events that serve the good of the industry and our clients and, of course, comply with the FCA’s inducement and conflicts of interest obligations.”
Philip Martin, head of marketing at network Openwork, told FTAdviser that an ‘unintended consequence’ of the FCA’s inducement guidance is uneducated advisers talking to clients.
Mr Martin said: “There is a risk that distributors will pull back from providers because of inducements. My fear is if you end up with not fully informed advisers [if providers pull back] then we have a consumer detriment situation.
“More clarity is essential. It is essential that advisers are given clarity on what the regulation means. Unintended consequence is uneducated advisers if providers do not interact with advisers.
“Providers are already pulling back and we are seeing from conversations a reticence and this is borne out of a lack of understanding of what the regulator will find acceptable.
“A consequence of this is that people pull back and in the medium term this leads to poorer informed advisers.”
He added that, in his view, it is “perfectly acceptable” to hold events which are justified by better consumer outcomes.
However, Steve Young, Sense’s commercial director, said that the network has not seen any reluctance from providers to be involved in “genuinely educational events”.
He said: “In fact, we will have more providers involved this year than last year. That said, over 60% of training is delivered by our own staff.
“Our approach has always been to simply pass on a proportion of the costs and that has been well received by providers in view of the paper.
“We do not accept that ‘untrained’ advisers will be a consequence of the inducements guidance.
“As an authorised firm we are responsible for ensuring that our advisers are competent and we would still run our adviser development events regardless of whether providers were involved in assisting us.”
