On Investing

Common-sense view of inducements

In January, the FCA released its final guidance paper on inducements and conflicts of interest in retail investment advice and with it, a torrent of worried chatter among product providers. The FCA was quick to assert that nothing in the document should be news to them; they sought merely to offer clarification in response to those who cried “Ambiguous!” when the regulator first publicised findings from its thematic review on the subject.

The rules on adviser inducements were in fact part and parcel of the RDR – end customer outcomes are negatively impacted if providers are effectively buying distribution. These rules have in large part not been adhered to, hence the thematic review.

The Platforum organised a roundtable discussion attended by representatives of the regulator, the IMA, fund managers and advisory firms, which took place at the beginning of April. We wanted there to be an open forum for providers and advisers to gain a better understanding of the FCA’s thinking and to give them opportunity to have specific questions answered.

Cue the fund managers’ perspective. Sales and marketing directors have budgets for company and product (range) promotion, much of which has already been committed to event sponsorship; now they have to take a pragmatic approach and see how they can make the details of the sponsorship packages satisfy the inducement rules.

Conversely, the FCA argues that you should always start with the question: “Will this provide benefit to the end customer?” and work from there. Some aspects of the events calendar might not be deemed as beneficial in this regard, so product providers should be open to wholesale rethinking of any current plans involving adviser contact.

It is easy to see how these differing lenses cause frustration in both camps. Product providers want specific examples of good and poor practice by which to compare their own activity while the regulator is all about principles.

In my view, it is all about common sense. Fund managers should not need the FCA to give them a spending ceiling in pounds sterling. What is reasonable/proportionate for them to contribute to adviser events varies according to location, size of facility required, length of time the manager gets to present on an investment solution, etc. The fund manager should be paying for its share of partici-pation and not way in excess of this.

More fundamentally, business information should sit behind these events. No 10-minute presentations before teeing up for the first hole on the golf course – genuine education needs to be delivered that can give the adviser another string to his/her bow when making recommendations to clients. Clear at our roundtable discussion was the perception that advisers will only show up to swanky events but I think this expectation will be extinguished once the supply is turned off. CPD requirements alone should entice enough advisers to attend events with provider presence.

All this has serious implications for corporate hospitality arrangements. Sponsoring sporting and cultural events is
a major part of fund managers’ efforts to boost brand awareness and the FCA is not – nor does it have the power to – try to limit this. But corporate hospitality organised alongside the branding exercise is within the remit of the inducements rules.

While all attendees at our discussion acknowledged the merit of relationship building in doing business, questions were raised as to whether this has to occur at the footie or at Adele’s latest concert. No one is trying to be the fun police here but should business conversations not happen over coffee or lunch?

This point is a contentious one. This is, after all, a people’s business in which we operate. Often we connect more with someone over a glass of wine than in a meeting room. Nurturing relationships with the people we currently or want to work with is quite a natural thing – to what extent should this be regulated?

Again, I think the response is to show a bit of common sense. A friendly lunch to discuss business matters is one thing; a lavish dinner with an iPad goodie bag attached is another.


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