Banning corporate entertainment for advisers?

01 October 2014


The Financial Conduct Authority (FCA) believes corporate entertainment for financial advisers by asset managers is wrong. What about other corporate entertainment? Will there be restrictions?

Businesses have of course provided entertainment of different kinds to attract new clients for decades, and it has grown in recent years with corporate entertainment packages and the like. Can the tide ever be turned by restrictions?

Many thanks to Professional Adviser for this report. This is the FCA document referred to:

A top regulatory lawyer has warned the Financial Conduct Authority (FCA) could eventually ban all forms of corporate entertainment for advisers by asset managers.

At the start of the year, the FCA issued an 18-page document covering its stance on inducements and highlighting some “poor practices” it had seen in the industry which it wanted to see quashed.

It has subsequently resisted calls to provide any more clarity on the subject around what firms can and cannot pay for.

The FCA’s counterargument is that, if it provides value, then why can the adviser not pay for it themselves?

Tamara Cizeika of London law firm Allen & Overy has said she expects the FCA’s stance on this will only harden over time, and the regulator will want to stop firms from hosting corporate hospitality entirely in future.

“I can say from very practical experience in having put arguments to the FCA, and having had them knocked back, that the steer from the regulator is that it does not really wish to see corporate hospitality in the industry in future,” she said. “That is their view and is the continual message they are putting across.”

Currently the test for whether corporate entertainment is suitable is if it is of reasonable and proportionate value, of a limited scale, and is not used in order to channel business to the firm. Asset managers have found the lack of clarity from the regulator around exactly what is allowed frustrating, but the message from Cizeika is clear. Proponents of corporate hospitality say it helps build relationships and devise better products which clients actually want.

But Cizeika said these arguments will fall on deaf ears unless firms have clear evidence of the value such events would provide for attendees. “I have come across a lot of pushback from the FCA when you try to use the argument of ‘relationship building’ as justification for corporate entertainment,” said Cizeika.“The FCA’s counterargument is that, if it provides value, then why can the adviser not pay for it themselves? The FCA wants firms to comply with the regime in substance, not to rely on technical arguments to avoid doing compliance.”

Senior figures have already revealed the fund industry’s trade body, the IMA, is at loggerheads with the FCA over the latter’s refusal to provide more assistance to firms to make sure they do not fall foul of its inducement rules. Heads of sales at a number of leading asset managers told Professional Adviser's sister titleInvestment Week they remain unclear about what the guidelines mean in practice, adding they are requesting meetings with the regulator to seek further clarity.A senior distribution figure at an asset management firm said: “There is nothing that definitive from the FCA, it is a very grey area. “We have requested clarification on the guidelines as, until we are clear, how can we put an effective policy in place?”