Payments from financial firms to providers are undermining ‘put the customer first’ rules by influencing advisers to offer certain products before others that might better suit customer needs, says the Financial Conduct Authority (FCA).
The FCA is concerned customers are diverted towards products that pay advisers more money and information from some advisers about what is financially best for the client is flawed.
The revelation follows research by the FCA into the Retail Distribution Review (RDR), a set of rules that came into force a year ago banning commission payments for financial advice.
Undermining fair play rules
The study suggests some providers are trying to get advisers to push their products by making payments that undermine the rules.
The rules say:
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Payments by financial firms to advisers should be based on reimbursing reasonable expenses paid by the adviser
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Any payments should benefit the service offered to the customer
Conflicts of interest
Clive Adamson, director of supervision at the FCA, said: “Rules on paying inducements and conflicts of interest are not new. Our review shows certain practices do not stand up to scrutiny. In the new guidance, 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 FCA study revealed:
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Some payments to advisers were linked to sales of certain products
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Product providers and some advisers had financial agreements that encouraged the sale of some products ahead of those offered by other firms
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Product providers were joining with advisory firms to sell financial services in a way that could cause conflicts of interest and lead to biased advice.
Warnings about bogus advisers
The FCA has also issued these warnings about bogus firms posing as regulated financial advisers:
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Mesirow Financial or Mesirow Financial International UK (clone)
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Phoenix Associates (London) Limited
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Keystone Asset Management Limited
Dealing with an unregulated firm
If you buy shares, save money or invest with an unregulated firm, you lose any protection offered by the Financial Ombudsman and the Financial Services Compensation Scheme. Broadly, you have no independent place to complain if the deal goes wrong and are unlikely to win any compensation.
Checking if a firm is regulated
Go to the Financial Services Register to check if a firm is regulated in the UK
Reporting a suspected bogus adviser
Find out how to report unauthorised advisers on the FCA web site
