Some life insurance companies are still influencing UK financial advisers to sell their funds to customers despite the Retail Distribution Review (RDR) that
came into force in December 2012 with the aim of removing the bias in fund selection.
The Financial Conduct Authority (FCA), the UK regulator, says the actions of some life insurers and advisory firms – which includes increased spending by insurers on support services provided by advisers – are “undermining the objectives” of the RDR.
The FCA reviewed 80 arrangements from 26 life insurers and advisory firms and found some life insurance firms had arrangements in place that “could influence advisers”.
Certain payments by life insurers to advisory firms appeared to be linked to securing sales of their products, the FCA says. As well as increased spending on support services, other methods are where an insurer will pay for research or management information from advice firms.
The FCA also found that certain joint ventures, where investment propositions are jointly designed by providers and advisory firms, could create conflicts of interest and potentially lead to biased advice. The regulator found one case where the advisory firm was paid “substantial up-front fees” by the provider, with its profits increasing the more it channelled business into the joint venture.
Many firms involved in the review have already changed their arrangements, the regulator says, and two firms that potentially breached rules have been referred to enforcement.
Clive Adamson, the FCA’s director of supervision, says the changes that have been made to the retail investment advice sector were designed to mark a step change in the way advice was given.
“It signalled the end of advice that might be influenced by the commission payments made by product providers to advisory firms, and the start of a new era of trust and transparency between a firm and its customers,” Adamson says. “The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR.”
The RDR regulates how much consumers pay for financial advice, what they pay for, and aims to improve professional standards by introducing a minimum level of qualification for all investment advisers.
©2013 funds europe