Regulator finds flouting of rules to avoid commission bias in financial advice

A regulator has found that some life insurers are not abiding by rules put in place to remove commission bias in financial advice.

The Financial Conduct Authority (FCA) said that many firms involved in their review have now changed their arrangements, while two firms have been referred to enforcement.

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. The FCA’s findings included:

· 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 (such as research or management information) 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.

· Further, the FCA also identified that certain joint ventures, where a new investment proposition is jointly designed by providers and advisory firms, could create conflicts of interest and potentially lead to biased advice. In one example, the advisory firm was paid substantial up-front fees by the provider with its profits increasing the more it channelled business into the joint venture.