Investors are paying for concerts and sporting events they never go to

Posted by Robin Powell on February 26, 2016

 

Imagine you’re a financial adviser. A fund management company invites you and your wife to watch your favourite comedian, rock band or sports team. Best seats in the house, followed by a slap-up dinner and drinks, with a gift thrown in for your other half. Be honest. The next time it comes to proposing an investment strategy to a client, wouldn’t you be tempted — just a teeny-weeny bit — to recommend a fund managed by the company that offered you the hospitality.

We’re all human. As a journalist, I’ve enjoyed this sort of hospitality several times myself. Has it impacted on the way I covered stories involving the companies concerned? Put it this way, it certainly didn’t make me more inclined to give them a hard time.

It’s concerning then to hear that, one year on from the issuing of guidance on inducements by the Financial Conduct Authority, many UK product providers are still flaunting the rules. The regulator told Money Marketing that it has written to 23 firms asking for more details of distribution agreements and hospitality benefits.

The newspaper has also obtained a letter from the FCA to one of the largest providers, in which it questions whether taking advisers to comedy shows, pop concerts and golf tournaments was actually “enhancing service to customers”.

The letter criticises the firm for inviting senior advice executives who “are more likely to be in a position to influence decisions taken by the firm which affects clients”. It also challenges the company for offering “disproportionately” expensive tickets.

In the same article, Money Marketing reporter Sam Brodbeck refers to an email he had seen, in which one particular provider offers advisers an “exclusive” invitation to the Silverstone motor racing circuit, including helicopter chauffeur, if they introduce at least £500,000 into any of the firm’s enterprise investment schemes.

Alistair Cunningham, director of Wingate Financial Planning, is quoted as saying that March and April is “cowboy season”, when providers blatantly incentivise advisers to place business with them.

James Daley from the ratings agency and campaign group Fairer Finance, told Money Marketing: “While it’s undoubtedly true that spending a day out with a contact can cement a better relationship than might be possible over a coffee or a sandwich, the harsh truth is that better relationships lead to bias and prejudice.

“If you’re an IFA, your job is to sell the most suitable products to your client. But if you start to take hospitality from one or more providers, your independence is compromised.”

I don’t want to be too poe-faced about this. There is a place for corporate hospitality. But there have to be strict guidelines which are properly enforced. Any providers found to be over-stepping the mark should be publicly admonished. Of course, advisers also need to examine their consciences when deciding which invitations, if any, to accept.

The bottom line is that hospitality needs to be paid for, and ultimately it’s the consumer who foots the bill. The same applies to all those branded pens and stress balls handed out at conferences.

The less providers spend on inducements, the lower their fees need to be, and the bigger the net returns investors can expect when they come to retire. Isn’t that what all this is supposed to be about?

 

Read the Money Marketing article here:

Clinging on: FCA letter reveals providers still breaking inducements rules

 

Related post:

No more encouragement — it’s time for enforcement of MiFID II

 

Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.

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