Aviva decided the only way it can adhere to the guidance, which states hospitality, gifts and promotional competition prizes must be of a reasonable value, is to put a blanket ban on all broker hospitality.
The rules were drawn up to stop providers in the retail investment market using “other” methods to induce advisers to sell their products following the commission ban.
But the FCA has warned the protection and mortgage markets to be on their guard because this behaviour will not be tolerated in any sector under its governance.
We now have new buzz words, including ‘reasonable value’ and ‘proportionate.’ Events should enhance the quality of service to the client, not channel business to one provider and be designed for business purposes.
So is Aviva’s seismic approach an indication of what’s to come for the mortgage market?
Mortgage Solutions surveyed key industry personnel to get a sense of likely direction of travel on what fits the ‘proportionate and reasonable value’ rules laid down by the FCA.
Lenders
The feeling
Unsurprisingly lenders were tight lipped about Aviva’s decision but felt that a total ban was over the top.
Behind closed doors policies are being reviewed with “a fine tooth comb” and lenders are watching the rest of the mortgage market closely to see who amends what.
What could be affected?
Lenders are comfortable with their programme of hospitality stating excessive events are already a thing of the past.
Business lunches with distributors are acceptable but overseas events (which have already been turned down) are not.
Internal controls such as a registration of attendance to log the cost and attendees should be strictly maintained and monitored.
Consequences
Lavish locations for training events, top performers reward events and conferences with add-on hospitality are drawing attention.
Cowes Week sailing events, Monaco Grand Prix, Six Nations and Lords tickets for top adviser firms plus VIP packages for hotels, transport and food were raised as examples of hospitality lenders would struggle to justify as reasonable.
The trade bodies
The feeling
Don’t panic. A complete ban is an overreaction.
As long as firms can prove they have been through a thorough decision-making process when deciding on the event and they are confident they can prove to the regulator the cost is reasonable, then they have nothing to worry about.
What could be affected?
It’s not just the decision to offer the hospitality which must be justified – it is the decision to receive it. Firms must make sure they are not caught out by accepting perks which do not enhance the quality of service to the client.
Consequences
Tough ones – providers and advisory firms have three months from 16 January to get their houses in order or else the regulator will consider further action.
The Association of Mortgage Intermediaries board members are currently considering the rules and will issue their response shortly.
Distributors
The feeling
Disappointed at the over-reaction and nervous about how other providers may react to sponsoring events.
Some thought overseas trips were a good way of guaranteeing attendance of the top brass and ensuring their attention.
Some said there is a difference between a reward and an inducement.
What could be affected?
Offering payments to get on the panels of smaller distributors or to become the provider or lender of choice for single tie propositions will become difficult to justify.
Top broker awards could be okay if performance is judged on quality and service as well as business levels. Volume is still regarded to be acceptable because top salesmen sell more, but the number of complaints and quality of cases must be assessed too.
Size and quality of industry-supported events will have to be curtailed if providers and lenders pull sponsorship.
Consequences
Education and training on products will suffer if providers or lenders do not sponsor events.
Distributors cannot afford to shoulder the cost alone – membership fees could rise.
Brokers
The feeling
Golf days attatched to training, short breaks to beer festivals or tickets to sporting events are rewards for hard work and not inducements to sell products.
Even the extravagant jollies of old didn’t influence advice or lead to detrimental consumer outcomes.
What could be affected?
Hospitality from single product providers rewarding firms which produce the most business will be difficult to justify.
Consequences
The loss of events sponsored by a conglomerate of lenders and providers, attended by leading industry speakers, is a much-used way of cascading information to distributors, educating advisers and contributing to CPD.
