When FTAdviser asked the FCA about businesses that rely on provider support to keep going, the regulator argued advisers cannot take cash if conflicts of interest arising are not able to be managed.
The FCA says there must be no risk of the customers’ interests being harmed. It has said that advisers can made a profit on services taken by providers, but the bigger the profit the more likely it is to give rise to a conflict - and especially so if the income is critical to the adviser’s survival.
Clare Griffiths, senior policy adviser of the Association of Professional Financial Advisers, echoed that the FCA’s rules do not prevent advisory firms from earning a reasonable profit but that advisers should seek to be proportionate in the margins they earn.
Ms Griffiths says the FCA expects advisers to earn a reasonable profit by charging a ‘market rate’ on services supplied to providers, but it warns that any profit increases the potential to create conflicts of interest that will need to be managed by firms.
She says: “The FCA’s concerns about conflicts are heightened when the profit generated is significant, as the greater the profit, the greater the risk that the advisory firm may recommend a particular provider’s product which may not be in the customer’s best interests.
“If an advisory firm is reliant on the on-going revenue generated from such agreements to sustain its business, this has greater potential to create conflicts of interest and the firm is therefore highly likely to be at risk of breaching the rules.”
