RDR in practice: FCA concerns that inducements may be undermining RDR objectives (Thematic Review and Guidance Consultation13/5)

The FCA has published findings from its recent thematic review into payments (and other benefits) by life insurers to advisory firms, which highlights the FCA's serious concerns over payments (and other benefits) in service or distribution agreements that it considers may undermine the objectives of the Retail Distribution Review (RDR) by influencing distribution of retail investment products.  These findings are relevant to all providers and distributors of retail investment products, not just the life industry.

In its thematic review, the FCA looked at agreements supplied by 26 life insurers and advisory firms.  Over half of the firms were found to have agreements which the FCA considered may breach Principle 8 (conflicts of interest) and the inducement rules (COBS 2.3), and which therefore may be said to undermine the objectives of the RDR adviser charging regime.

Guidance Consultation 13/5 "Supervising retail investment advice: inducements and conflicts of interest" (GC 13/5) contains examples of good and bad practice found by the FCA, together with proposed FCA guidance to help product providers and advisory firms understand the FCA's expectations for service and distribution agreements relating to retail investment products.  The interaction between the new RDR rules and the (largely unamended) pre-RDR inducement rules has been uncertain and difficult for firms.  Clarity from the FCA in this area is to be welcomed, although GC 13/5 would have been of more use if it had been published prior to RDR implementation.  To read our briefing, click here.