GC13/5 Supervising retail investment advice: inducements and conflicts of interest

This proposed guidance relates to the following rules in the FCA and PRA Handbooks

  • Principle 8 (Conflicts of interest)
  • The inducements rules at COBS 2.3
  • SYSC 3, 6 & 10

The full guidance: GC13/5 Supervising retail investment advice: inducements and conflicts of interest

This guidance is likely to be of most relevance to providers manufacturing retail investment products for advisers and any advisory firm providing personal recommendations in relation to retail investment products. It includes those circumstances when payments are made by providers to unregulated third party firms for the ultimate benefit of the advisory firm.  It does not apply to firms within the same group that both manufacture and distribute their own retail investment products, or where the advisory firm is an associate of the provider.  Under these circumstances the rule at COBS 6.1A.9R applies.

Background to this consultation

One of the central objectives of the Retail Distribution Review (RDR) was to remove the potential for adviser remuneration to distort the advice consumers receive.  By ending commission payments from providers to advisory firms, we wanted to help ensure that:

  • providers compete on the price and quality of their products to secure distribution rather than on commission levels, and
  • advisory firms are not inappropriately influenced by the payment of commission when providing advice to their customers

We wanted to check that firms were not undermining these objectives so we assessed whether:

  • advisory firms were soliciting payments for entering into service or distribution agreements that could cause them to channel business to particular providers and affect the advice given to customers, and
  • providers were making these payments to secure distribution of their products

Such behaviour could result in firms breaching Principle 8 (Conflicts of interest) and the inducements rules.

This report sets out the findings of our thematic supervision work on the payments made by life insurers to advisory firms under service or distribution agreements.  It also sets out guidance for consultation on how such agreements can breach Principle 8 and the inducements rules and so undermine the objectives of the RDR.  

Summary of the key issues

  • This guidance helps providers and advisory firms further understand our expectations of them in connection with service and distribution agreements relating to retail investment products.
  • The guidance sets out the FCA’s views on how firms can act in line with Principle 8 and the COBS 2.3 inducements rules.  The guidance sets out a number of ways, but not the only ways, firms can comply with the relevant requirements in the FCA Handbook.
  • We expect firms to review, and, if necessary, revise their existing agreements in light of the final guidance we publish following consultation.

Cost benefit analysis 

A cost benefit analysis (CBA) is included in this consultation.

We invite your views on

  1. Our proposed guidance; and
  2. Our cost benefit analysis in Annex 1.

Do you have any comments on the proposed guidance?

Do you agree with the cost benefit analysis?

Are there any other costs or benefits we have omitted?

Please respond by 18 October 2013 (4 week consultation)

Please email your responses to

[email protected]

Or send your responses to:

Paul McCormick
Life Insurance Department, Supervision Division
The Financial Conduct Authority
25 The North Colonnade
London E14 5HS
Telephone: 020 7066 2736