The FCA has found evidence of life insurers having inducements in place that could influence advisers, ‘undermining the objectives of RDR', and is to consult on new guidance.
A review published by the regulator has found some life insurance firms had arrangements in place which could influence advisers, contrary to the RDR's aim of removing commission bias in financial advice.
The FCA asked 26 life insurers and advisory firms to provide information about their service or distribution agreements; in total it received and reviewed 80 agreements.
Some payments by life insurers to advisory firms appeared to be linked to securing sales of their products; this included an increase in spending on support services, provided by advice firms in the lead up to, and after the implementation of, the new advice rules.
In many cases the FCA did not think the business benefit of these increases was justified nor did it improve the quality of service to the customer.
There were financial arrangements in place with life insurers that incentivised advisory firms to promote a specific provider's product to their advisers, creating a risk that advice would be influenced more by commercial decisions than the interests of customers, the review identified.
However, many of the firms involved in this review have now changed their arrangements as a result of early action by the FCA. Two firms have been referred to enforcement in specific cases where the FCA identified potential rule breaches.
Alongside the review, proposed guidance has been published to help firms further understand how they should act.
Clive Adamson, director of supervision at the FCA said: "RDR 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."
Maggie Craig, director of financial conduct regulation at the ABI said welcomed the review and said the paper would be helpful in providing guidance.
She added: "It is encouraging to see that there is good practice in this area and that the FCA has acknowledged that many firms have already taken action to improve their practices and the systems and controls around inducements.
"Today's publication is a good start, but we do believe that more clarity regarding FCA expectations in this area would be helpful in some areas, particularly around initiatives such as joint ventures."
The guidance consultation is open until 18 October 2013.
