The Financial Conduct Authority (FCA) has published a review to find out whether firms continue to be influenced by inducements from product providers, despite the Retail Distribution Review (RDR) coming into effect in January 2013. The review published today found some life insurance firms had arrangements in place which could influence advisers, contrary to the RDR’s aim of removing commission bias in financial advice.
Many of the firms involved in this review have now changed their arrangements as a result of early action by the FCA. Two firms have been referred to enforcement in specific cases where the FCA identified potential rule breaches.
Alongside the review, proposed guidance has been published to help firms further understand how they should act. The guidance explains why the FCA thinks certain payments between providers and advisers may cause conflicts of interest and also gives some helpful examples of good and bad practice. This includes how advisory firms might want to deal with conflicts caused by providers paying for IT development and maintenance, staff training, conferences and seminars, hospitality, research and promotional activities.
Clive Adamson, the FCA's director of supervision, commenting on the findings, said:
"The changes we made to the retail investment advice sector were designed to mark a step change in the way advice was given. It signalled the end of advice that might be influenced by the commission payments made by product providers to advisory firms, and the start of a new era of trust and transparency between a firm and its customers. The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR.
"Most the firms involved in the review have already made changes, which are welcome, but we want all firms in this market to review and, if necessary revise their existing arrangements. We will revisit this area in the future to check that the necessary improvements have been made."
The RDR came into force on 31 December 2012 and made significant changes to the investment advice market. It made clear how much consumers pay for financial advice, what they pay for, and improved professional standards by introducing a minimum level of qualification for all investment advisers.
The FCA asked 26 life insurers and advisory firms to provide information about their service or distribution agreements; in total it received and reviewed 80 agreements. The FCA’s findings included:
The guidance consultation is open until 18 October 2013.
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