FCA issues final guidance on fund inducements

gavellaw booksInvestment managers entering into joint ventures with financial advisory firms and other distributors with the aim of selling products must speak with the Financial Conduct Authority (FCA) first, the UK regulator says.

The order comes as part of the regulator’s final guidance on inducements paid by fund managers to distributors.

A review published in September led to the latest guidance after it found payments were still being made that could result in advisory firms favouring one product provider over another, undermining the aims of the Retail Distribution Review (RDR) introduced in December 2012.

Practices that give the FCA cause for concern include certain joint ventures, where a new investment proposition is jointly designed by providers and advisory firms that could create conflicts of interest and potentially lead to biased advice.

Two other concerns for the FCA are: some payments by product providers to advisory firms appear to be linked to securing sales of their products; and the existence of financial arrangements that potentially incentivise advisory firms to promote a specific provider’s product.

In the finalised guidance on inducements published today, the FCA makes it clear that financial advisers and product providers share the responsibility of managing potential conflicts of interests when receiving and making payments under service and distribution agreements.

Clive Adamson, director of supervision at the FCA, says of the guidance: “The rules on inducements and conflicts of interest are not new. 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.”

Among the requirements of the guidance, firms are told they must identify any conflicts of interest themselves, and that if they operate provider panels, the inclusion of providers must not be influenced by the willingness of providers to purchase significant services from the distributor.

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