Inducement update
We have been having some conversations with partner firms about the latest FCA May missive: PS 18/10.
The potential impact looks pretty serious for network relationships in particular.
I should warn, this paper has not long landed, not everyone is even aware of it and even where they are aware, they may yet have to interpret it or indeed have a completely different interpretation, such is the world of regulation and compliance.
Very clearly, for a regulator, touching upon implementation of MiFID II’s updated inducement requirements, including the new MiFID II requirements restricting the monetary and non-monetary benefits which can be received by investment adviser and portfolio manager firms, the FCA notes that “firms which provide independent or restricted advice to retail clients in the UK, and which are subject to COBS 2.3A.15 R, and / or to the rules in COBS 6.1A, cannot accept any payment, commission or benefit of any kind which is paid or provided in connection with their business of advising, except for: any form of charge payable by or on behalf of a retail client in relation to the provision of a personal recommendation (ie adviser charges) acceptable minor non-monetary benefits (which, for the avoidance of doubt, cannot involve any monetary payment)
In short, it will no longer be possible for provider firms to ‘procure’ from networks marketing services (including events) in return for access to business opportunities.
Gone are the days that a provider can state their intention is to “spend our budget on buying marketing opportunities directly with the distributor firms (networks) that either support us or that we’re targeting. This was, by the way, a verbatim quote from a major provider firm taken from an e-mail sent by their head of marketing last year. Not at all in keeping with the spirit of the inducements directives post RDR.
The FCA goes on to note that “These new rules do not prevent firms from organising or attending conferences, providing that their actions comply with applicable rules”.
Going further, they say, no doubt with my e mail sentiment noted above in mind "The aim of this was to tackle a concern identified through thematic reviews following the implementation of the RDR, that firms were using various types of payment to secure distribution. We believed this undermined the spirit of the RDR”.
To cut through a lot of regulatory smoke and mirrors, the FCA paper states that payments made by providers to distribution channels like networks will no longer be possible other than for protection products or mortgages.
The understanding, from conversations in June and July with some Panacea partner firms, is that the days of networks being in receipt of payments from provider firms for various marketing packages or access to network advisers in return for a substantial or indeed any payment cannot continue from the 1st October 2018.
Deminimus is the name of the game now.
The reason for the calls we have had is that this is potentially a very big industry problem Once again an unforeseen impact of regulation.
Due to the agnostic nature of what we do, firms have already noted from a compliance perspective that we can be quite uniquely helpful in keeping relationships supported, facilitating events, arrange roadshows with technology solutions and keeping communication channels open.
We are there for all the advisers who want to be part of our community.
The financial oxygen line of ‘pay to play’ cash flow is cut with this directive. Taken to the logical conclusion, very many networks that survived the removal of initial and trail commissions, segmentation, the transition to fees and the RDR, may need more than ‘life support’ with these changes.
The FCA has realised, as did we when Panacea was started some 11 years ago, that there must be another way to engage with those ‘advising and arranging on’ your products and get them to market. Some provider firms may at the moment be in denial that the scenario laid out above could ever happen, but it will.
In the immortal words of Kenneth Wolstenhome when commentating on the 1966 World Cup final’s winning goal from England’s Geoff Hurst ( a financial adviser as it happens), ‘ They think it’s all over………well it is now’.
What we know.
Panacea is not a distribution channel yet our influence extends to over 60% of the market.
We know who these advisers are, where they are, and a whole lot more. We know what business volumes they write, what platforms they use.
Even more importantly, 30% of our community has a relationship with a network, national or support service and we know who they are.
And we are already being used by some provider firms to message when they are refused access.
From October, we can continue support your marketing plans just as the rug has been pulled, at a much lower cost, with much more GDPR compliant data being fed back and more opportunities to use technology for events and engagement.
Some useful links.
Derek Bradley, CEO
Panacea Adviser