Providers taking advisers to sporting or social events which their clients get no benefit from have been criticised by the regulator, two years after it published clear guidelines about the risks of conflicts of interest.
Today (18 April), the Financial Conduct Authority published findings from work it carried out over the course of 2015 on benefits provided and received by firms conducting Mifid business, and those carrying out regulated activities in relation to a retail investment product.
It found advisers had been treated to a range of sporting or social events, such as golf, rugby, tennis and concerts last year.
But these hospitality benefits did not appear capable of enhancing the quality of service to clients, because they were either not conducive to business discussions or the discussions could better take place without these activities.
Principle 8 of the FCA’s Principles for Businesses state firms must be “mindful of conflicts of interest between itself and its customers, and between a customer and another client”.
Today’s findings explained that when providing or receiving a non-monetary benefit, the regulator expects firms to consider and assess whether all aspects of the benefit are designed to enhance the quality of the service to the client, including the location and nature of the venue and those activities which are not conducive or required for business discussions.
“Where an activity or event provides a number of non-monetary benefits, you must consider each benefit separately.
“Just because one benefit provided by the firm is designed to enhance the quality of service to a client and is capable of being paid or received without breaching the client’s best interest rule does not mean that another benefit can be included in or alongside the compliant activity or event.”
The FCA also found instances where advisers were incurring costs for facilitating training or educational material supplied by product providers who were making payments to advisory firms in excess of the costs incurred.
In response, the FCA said providers should make payments to advice firms to cover these costs, but these should only cover the costs incurred and should not include a profit for the adviser.
It also found examples of hospitality logs which did not always record relevant detail or were not well maintained, with the FCA stressing the importance of keeping sufficient detail.
In finalised guidance on inducements published in January 2014, the FCA made it clear financial advisers and product providers share the responsibility of managing potential conflicts of interests when receiving and making payments under service and distribution agreements.
This guidance followed a review which found payments were still being made that could result in advisory firms favouring one product provider over another, undermining the aims and spirit of the Retail Distribution Review to increase transparency and professional standards in the investment advice industry.
Under final inducements’ guidance, payments from product providers to advisory firms should be based on “reasonable reimbursement for the costs incurred by advisory firms”. Furthermore, any such payments should always enhance the quality of service provided to customers.
Adviser view
Peter Matthew, managing director of Cornwall-based Jacksons Wealth Management, said: “Are there not bigger fish to fry? It doesn’t show a lot of confidence in advisers.
“We are generally quite nice people with our clients’ interests at heart but it is the bad ones who put the rest of us into disrepute.
“A game of golf is going to make no difference in the grand scheme of things.”
