FSA warns firms must not try to 'work around' commission ban The Financial Services Authority (FSA) has written to the CEOs of 24 product provider and advisory firms, outlining our concerns that firms may be looking to 'work around' the adviser charging rules by soliciting or providing payments or benefits.
One of the principal aims of the Retail Distribution Review (RDR) is to allow consumers to have confidence that the advice they receive is in their best interests and that advisers are not simply recommending providers which pay the highest commission.
But our supervisory work has alerted us to moves in the market which could undermine the RDR adviser charging provisions and also unfairly disadvantage those advisers who are working hard to treat their customers fairly and prepare for the upcoming changes. We are concerned that certain firms may be looking to 'work around' the adviser charging rules by soliciting or providing payments/benefits. This might mean that advisers continue to provide 'biased' advice to consumers (when recommending a product provider) and also make some firms' adviser charges look lower than others simply because of the deals and arrangements they have in place with providers. Money from these arrangements would effectively cross-subsidise the cost of advice and could cause firms to recommend certain providers and products over others.
Cross-subsidising the cost of advice could lead to a situation where Firm A is charging less for its advice than Firm B because it has a deal in place with a product provider. Firm B's charge for advice reflects all the costs it incurs, whereas Firm A's charge for advice does not. As a result, customers could end up picking the cheaper option without realising they may be receiving biased advice.
We will be challenging firms who are pursuing these deals and arrangements and we will take robust action where we see evidence that they are circumventing the rules. This is not about banning arrangements which are reasonable and comply with our rules; it's about cracking down on those firms that are seeking to get an unfair advantage over others. We want to ensure a level playing field where firms can compete upon the basis of the service they provide to their clients; not the deals they have in place with product providers.
Please find the letter here. <http://www.fsa.gov.uk/static/pubs/guidance/rdr-inducements-rules.pdf>
