If the FCA is back focusing on inducements, says Professional Adviser's Armchair Critic, it should aim for an environment where the adviser thinks of lunch with a provider as neither an entitlement nor a line that cannot be crossed
In an ideal world, a good regulator should be like a good referee - you hardly notice they are there. Since the Financial Services Act in 1986, the Financial Conduct Authority (FCA) - and before it the Financial Services Authority - has expanded its influence without at any time being either low-key or popular.
It has, to be fair, achieved an entry-by-qualification advised sector and there are now far fewer places where absurd levels of commission can be had or where transparently opaque charging structures rule the day. The whole thing remains far too complicated but much of that - most obviously tax and pension rules - remains outside the FCA's considerable remit.
Among other things, the regulator should provide a stable and workable framework for market participants to get on with and compete. In the early days it seemed that sensible choices were made - for example, shall we regulate product or distribution? Answer - distribution. Not both.
We also now have suitability requirements and they cannot, in principle, be questioned. In last month's third consultation on the second Markets in Financial Instruments Directive (MiFID II), however - which, at 300-plus pages, is not designed to achieve either wide readership or wide participation in the consultative process - we again have a focus on inducements.
There is apparently evidence that firms are using inducements and that advisers are being induced to make unsuitable choices for their clients. The FCA know this from sample work. So why then not yellow or red card the guilty parties, describe the nature of their crime and require - assuming their breach did not resulting in debarring - that they clearly disclose their error in all future client dealings?
Instead - invoking the power of MiFID - we have a set of complicated proposals on inducements. It is a little dispiriting - we will only have a low-key regulator when all players in the sector operate reasonably. The sins of the few ... and so on and so forth.
Markets have always required relationships to help them work. In a professionalised market such as this, the relationship bit must not be dominant - that is why we need suitability rules. Advisers spend good money on research or they outsource certain aspects of their process and, whether they are directly authorised or in a network, they have to account for their actions and record them for inspection.
So where in this professionalised world is there a place for the induced post-prandial adviser blithely recommending unsuitable solutions on the back of one too many lattes? I know not of any such advisers and if you do - please blow your whistle.
I simplify a little, of course - there are still some providers who market like its 1979 and still some advisers who see providers as a legitimate source of free things. Giveaways at conferences have declined - and so they should.
There is I submit a negative correlation between enthusiasm for trinkets and branded coasters and the flow of quality business. We are moving on and, again, so we should.
But the idea that advisers and providers should not get together unless client benefit can be immediately demonstrated is to misunderstand the nature of commerce. Offline conversations can be invaluable and this consultation paper should ideally, and despite the paper's unnecessary girth, generate a robust response from the sector.
More grown-up approach
We need to move to a more grown-up approach where providers should not feel they are either cementing a commercial relationship through taking an adviser to lunch, nor risking the wrath of their compliance officer. Similarly the adviser should not think of lunch as an entitlement nor should they feel they have crossed a line in accepting it.
The point of a lunch is to cover things that are best suited to an offsite, informal setting. Five minutes social chat then business. Such conversations benefit all parties - and ultimately the client - and, as part of this grown-up world, not all tabs would be picked up by the client.
The old-fashioned lunch to express thanks for the business should be well on the way out. The speculative lunch to curry favour with the lunchee was always a bad idea and should be consigned to the drawer marked historical business practices. And by lunch, of course, I really just mean ‘free stuff'.
We then need to move, perhaps gradually, towards a recognition that, since these offline, offsite conversations benefit all parties, then the costs should be shared in some way. Otherwise they will always seem like relics from the olden days.
Brendan Llewellyn is owner of Marketing Edge and director of Adviser Home
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