This is the question that all investors should be asking after the publication of a new Financial Conduct Authority (FCA) paper this morning.
The FCA found that over half of the firms they sampled had agreements in place which it considered to breach its inducement rules and the objectives of the Retail Distribution Review (RDR).
They found that some life assurance companies were making payments to adviser firms which appeared to be linked to securing sales of their products.
Some product providers were also making payments to adviser firms designed to promote a specific product to their advisers.
Doing this creates a risk that advice would be influenced more by commercial decisions than the interests of customers.
The FCA also found that certain joint ventures between providers and advisers could create conflicts of interest and potentially lead to biased advice.
An example of these joint ventures is the creation of a new investment proposition, jointly designed by the provider and adviser firm.
In two cases, the nature of the inducements paid by product providers to advisers were so serious that the firms in question have been referred for enforcement action; it would be unsurprising to see big fines and public censure happening quite soon.
One aim of the Retail Distribution Review was removing commission bias.
It appears that many advisers are incapable of saying ‘no’ to commission, in whatever form it is being offered.
The providers are certainly at fault here; they need to stop offering these inducements and seeking to influence distribution with any form of payments.
Advisers who have accepted these inducements are also to blame.
They should have the willpower (and robust business models) to turn down offers of big cash payments from product providers.
Unfortunately many of these adviser firms are in such weak financial positions, habitually loss-making year after year, that they have no choice but to say ‘yes’ when cash is on the table.
Is your financial adviser being influenced by a product provider? If the answer is ‘yes’ or ‘maybe’, you need to find a new financial adviser.
There are plenty of firms out there which behave in a professional and trustworthy fashion.
Accepting inducements of any kind from a product provider is not in the nature of professional advisory firms.
Our only commercial relationships exist with our clients, which is precisely how it should be in the post-Retail Distribution Review world.
