The Financial Services Authority (FSA) has expressed concerns about the use of distribution deals to circumvent rules banning the payment of commission.
With the retail distribution review (RDR) set to ensure that firms can only be paid through adviser charging, the FSA said it had already detected some providers "soliciting or providing" payments intended to seek the same outcome as commission.
In its latest RDR newsletter, it said: "Clearly such arrangements are not in the spirit of what we're all working so hard to achieve.
"We are concerned that non-commission payments and benefits may be indicative of firms seeking alternative ways to preserve features of the market that the RDR intended to address.
"We have always said that we would take any necessary action to deter firms from frustrating the intended market outcomes. We are considering ways to reinforce our expectation that firms can only be remunerated by adviser charges in relation to their new advisory business."
The regulator also emphasised that it was continuing to monitor the payments of commission in the run up to RDR implementation, with a focus on firms seeking high levels of initial and recurring commission, "potentially leading to unsuitable advice."
Among the poor practices it wants firms to be mindful of are:
- failing to consider customer's wider
- financial circumstances resulting in
- financial detriment;
- recommending switching to new products without due consideration of the associated costs;
- inadequate or inappropriate documentation of suitability;
- failing to fully consider the clients' risk appetite or capacity for loss;
- failing to obtain full Know Your Customer information
- failing to fully consider tax efficient alternate solutions.
It added: "Over the next 12-18 months, we will continue to examine our data to identify firms where we see adverse activity in the run up to the end of the year and beyond.
"If we find evidence of adverse activity in relation to the points above we will take action as required."
