In finalised guidance on inducements published today, the Financial Conduct Authority (FCA) makes it clear that financial advisers and product providers share the responsibility of managing potential conflicts of interests when receiving and making payments under service and distribution agreements.
The guidance follows a review that found payments were still being made that could result in advisory firms favouring one product provider over another, undermining the aims of the Retail Distribution Review (RDR). The FCA has been clear that firms have to comply with the spirit of the RDR, which aimed to increase transparency and professional standards in the investment advice industry.
Following consultation, the final inducements’ guidance states that 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. The regulator has provided additional examples of good and poor practice, and guiding principles to further help industry.
Clive Adamson, director of supervision at the FCA, says of the guidance:
“The rules on inducements and conflicts of interest are not new. However our review made it clear there were certain practices that did not stand up to scrutiny. In the guidance published today we are helping firms better understand our expectations. Now it is for firms to make sure any payments are legitimate, are in consumers’ interest and that potential conflicts are well managed.”
The original review was published in September and found a number of practices that gave cause for concern. They included:
The FCA has published its finalised guidance together with a summary of the feedback received to the guidance consultation, to help firms better understand its expectations. The FCA expects firms to review, and, if necessary, revise their existing agreements in light of the finalised guidance, and to do so within three months of its publication.
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