Not only should advisory firms consider situations involving monetary issues, but they should also bear in mind that the FCA guidelines list overlap of staff functions as being poor practice. This staff functions create a conflict of interest that may affect advice given to a client. Advisory firms should consider whether, for example, the person responsible for providing information and guidance to advisers (to pass to clients) should also have the task of negotiating the provisions of products or services with providers. Such a scenario might mean, through no fault of that individual, that they are inappropriately influenced in respect of a particular provider.
The significance of this guidance should not be lost on advisory firms, which should now consider their entire relationship with providers. Firms should be careful, for example, not to agree long-term multi-year agreements with providers, which the FCA deems might cause a conflict of interest because of the significant revenue stream it may provide the advisory firm with.
Despite the far-reaching nature of this guidance, advisory firms will not be caught within its remit if they can demonstrate that a payment or non-monetary benefit that is offered or accepted, or a potential cause of conflict of interest, does not result in an actual inducement or conflict of interest. Advisory firms should consider how best to demonstrate this, and should also ensure any potential inducement or conflict is mitigated by a client receiving the benefit or an enhanced service or product.
The guidelines go in depth into the possibilities for inducements and conflicts of interest that may arise in a provider-advisory firm relationship. Scenarios and issues advisory firms must take particular care with include:
• Panel selection – where any payment or service rendered may unduly influence such selection, and ultimately the products that will be on offer to clients.
• Exclusive provider deals – a conflict in this situation may be hard to disprove given the number of providers to which the retail client might have access.
• Re-imbursement of costs – no payments from providers to advisory firms for services should reflect anything other than a reimbursement of costs of those services.
• Disclosure – a failure to disclose payments that have been made to an advisory firm may raise alarm bells with the FCA.
• Information technology development and maintenance – any payments by providers to firms that will be developing software required by the provider to provide its service must only be made if an equivalent cost saving will be generated.
