Regulation  

Trade body hits back at FCA ban on provider perks

Trade body hits back at FCA ban on provider perks

An industry professional body has raised concerns about the Financial Conduct Authority's planned total ban of anything it considers a perk given to an adviser by a provider to induce them to sell their products.

The Chartered Institute for Securities and Investment has said the plans, contained in the regulator's proposed new rules on financial guidance, could ultimately hurt consumers.

In August the FCA proposed changing the definition of advice so it will only include personal recommendations, meaning guidance will cease to be a regulated activity for the majority of authorised firms.

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But as part of these proposals, which were put forward as part of the Financial Advice Market Review, the FCA has said it intends to ban inducements.

The CISI said: "Whilst extravagant hospitality gifts and monetary inducements are clearly unacceptable, the banning of inducements outright is likely to have unintended consequences.

"If firms feel as though they cannot take a client, competitor or supplier out for lunch, or accept a space at a conference, for example, then opportunities for people to understand each other will be missed.

"These activities offer the possibility of collaboration, communication and development, which ultimately benefit the end user, and an outright ban may prove to ultimately disadvantage consumers."

Under current rules introduced by the FCA in January 2014, advisers cannot accept any fee, commission, or receive or provide any non-monetary benefit from companies they do business with, unless it is provided by the client or does not prevent the firm from complying with its duty to act in the client's best interests.

These rules were put in place to ensure advisers and providers were not able to get round the commission ban introduced by the Retail Distribution Review in 2013, which sought to sever the conflict of interest between the manufacturers and sellers of products, and end clients.

Elsewhere in its response to the FCA's  consultation, the CISI also expressed concern about the FCA’s proposed approach to qualifications.

Under the planned new rules the regulator suggested training and competence requirements apply only to those staff who provide personal recommendations, as opposed to those who only provide guidance.

CISI said: "This move is counter-intuitive and could result in a detrimental end result for consumers. Customers expect to deal with suitably qualified professionals, who they trust, when having discussions about their finances.

"In the light of a long list of mis-selling scandals there is still a lack of trust in financial services by consumers and narrowing the scope of training and competence requirements is unlikely to do anything to help restore the trust.

“Whilst there will be many informed consumers who will appreciate the difference between recommendations and guidance, there will be many - perhaps more - who are not aware of this subtle difference."

The FCA has proposed that the same rules should apply to authorised firms when they provide guidance as when they carry out other unregulated activities.

This means the client’s best interest rule, the principles for business and the fair, clear and not misleading rule will all apply.