On Friday, the UK Financial Conduct Authority – a corporate regulatory authority with similar powers to ASIC – revealed that inducement payments between financial product manufacturers and advisers were still rife, despite the RDR’s ban on conflicted remuneration.
As the UK approaches the one-year anniversary of the RDR’s introduction, the corporate regulator has been forced to provide additional guidance to assist product providers and advisers to manage their conflicts of interest.
The guidance follows research conducted by the FCA which found that, despite the explicit ban on conflicted remuneration in the RDR regulations, “some payments by product providers to advisory firms appeared to be linked to securing sales of their products”.
In addition, the review uncovered “financial arrangements” between product providers and advice firms that “potentially incentivised…to promote a specific provider’s product to their advisers”.
“The rules on inducements and conflicts of interest are not new,” said FCA director of supervision Clive Adamson.
“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.”
Will FOFA’s ban on conflicted remuneration be more successful? Have your say below.
You’re on the right track, Dave, but the focus is always on the adviser who may be receiving conflicted rem – never on the fund manager or insurance company that is making the payment. No Payment – no conflict!Since FOFA was first floated and the term “vertical integration” entered our vocabulary it has been obvious that managers would devise schemes that ensure that in-house advisers use house financial products. ASIC will do well to look more closely at institutional methods of rewarding advisers! The community deserves a more fair and transparent deal.
If the dealer groups/self licenced enforce the rules–it will work. ASIC has the power to enforce and should use it-knock the incentives out at licence level and the results should be there. Chasing individual advisers only hits the small fry-a dealer group is far less likely to step over the line. Vertical integrated issues will still exist though.