Specifically, the FCA found evidence of both life insurance and advisory firms breaching Principle 8, which relates to conflicts of interest, as well as the inducements rules.
During the thematic review the regulator asked 26 firms to provide information about their service or distribution agreements, reviewing 80 agreements in total.
The FCA said earlier this year it would look into instances of advisers trying to circumvent RDR, naming it "Distortions of the RDR".
Just over half of the firms it sampled had agreements it considered could breach Principle 8 and the inducements rules and so undermine the objectives of RDR.
“This may mean the customer benefits of the RDR are not being fully realised in some firms as advice to customers may be inappropriately influenced by the existence of such agreements,” the FCA’s guidance consultation document said.
“We also identified through our wider supervisory work, concerns about certain types of joint ventures between providers and advisory firms where the terms of the arrangements were not consistent with the objectives of RDR,” it added.
Guidance consultation
The FCA said the proposed guidance is relevant to all providers manufacturing retail investment products for advisers and any advisory firm providing personal recommendations in relation to retail investment products.
It does not apply to firms within the same group that both manufacture and distribute their own retail investment products, or where the advisory firm is an associate of the provider.
Many of the firms involved in the review have now changed their arrangements, the regulator said, which it deemed a result of its early action. Meanwhile, two firms have been referred to enforcement in specific cases where the FCA identified potential rule breaches.
Clive Adamson, the FCA’s director of supervision, said: “The changes we made to the retail investment advice sector were designed to mark a step change in the way advice was given. It signalled the end of advice that might be influenced by the commission payments made by product providers to advisory firms, and the start of a new era of trust and transparency between a firm and its customers. The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR.
“Most the firms involved in the review have already made changes, which are welcome, but we want all firms in this market to review and, if necessary revise their existing arrangements. We will revisit this area in the future to check that the necessary improvements have been made.”
The FCA’s guidance consultation highlights examples of good and bad practice in relation to the themes mentioned above. The FCA would like reponses to the consultation by 18 October.
