Uk Investigates Two Insurers Over Banned Sales Commissions

UK kicks off Lloyds bank share sale

A man waits outside the corporate headquarters of Lloyds Banking Group in the City of London August 1, 2013.REUTERS/Andrew Winning

The new rules aim to protect consumers by ensuring that independent financial advisers recommend suitable products, without bias, rather than promote ones that earn commissions. But since they came into effect at the start of the year, banks have withdrawn from offering financial advice, causing concern that consumer choice was diminishing while the costs of qualified advice was putting it beyond the grasp of people on lower incomes. Under the previous commission-based system, investors would only pay if they bought a product from an adviser, whereas under the new rules they are charged a fee for receiving advice. “The key thing is to judge what is in the consumers’ best interests and forcing more (advisory) firms out of the market may not be the best solution if there is no alternative route to advice emerging from the market,” said Bruno Geiringer, a partner at law firm Pinsent Masons. Under the new rules, part of a so-called Retail Distribution Review (RDR), companies such as pension and investment companies are not allowed to pay an adviser upfront for selling their products only to claw this back through opaque product charges. The FCA, which is attempting to create a “credible deterrent” to wrongdoing with bigger fines and product bans while pursuing cases against firms and individuals, warned it would continue to do spot checks on the industry after recently discovering the potential breaches to RDR rules. “MORE CLARITY” Clive Adamson, the FCA’s director of supervision, said most companies assessed in a review of the industry had already made changes to address the regulator’s concerns, but added: “The findings of this review reveal that the actions of some firms have the effect of undermining the objectives of the RDR.” “We will revisit this area in the future to check that the necessary improvements have been made,” he said. The FCA said some life insurers might be offering inducements via support services such as research or management information provided by independent advisers. It also identified a number of joint ventures between product providers and financial advisers it said could lead to “biased advice”. The Association of British Insurers (ABI), which estimates that insurers manage investments of 1.8 trillion pounds ($2.9 trillion) – equivalent to around a quarter of Britain’s total net worth – called for more clarity on rules governing partnerships. With concerns growing about whether the RDR will lead to fewer people having access to good independent advice, British politicians have said they might take a fresh look at the way in which Britons receive financial advice. Research published last year by consultancy Deloitte warned 5.5 million people in Britain could become “financial advice orphans”, unable or unwilling to pay for advice.

UK Financial Investments launched the sale of the government’s shares in Lloyds earlier on Monday, a milestone in the country’s recovery from the 2008 financial crisis, during which taxpayers pumped a combined 66 billion pounds into Lloyds and Royal Bank of Scotland (RBS.L). “We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership,” a Treasury spokesman said. Britain pumped 20.5 billion pounds into Lloyds during the crisis, leaving taxpayers holding a 38.7 percent stake. The sale will reduce its stake to 32.7 percent. Although the size of the stake being sold is lower than some analysts had expected, it is still comfortably above that of the Royal Mail, which is expected to raise between 2 and 3 billion pounds in its upcoming privatisation. “It’s a great signal it has been kicked off, the wheels have started to turn,” said Chirantan Barua, analyst at Bernstein. Labour finance spokesman Chris Leslie said the sale should be used to repay national debt. “It’s vital that taxpayers get their money back and this must be the prime consideration in the sale of the government’s stakes in the banks,” he said. The sale is a vindication for Lloyds’ Chief Executive Antonio Horta-Osorio, who has restored the bank to profitability since his appointment in 2011, simplifying the business to focus on lending to UK households and businesses. Horta-Osorio said: “I believe this reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy,” Horta-Osorio said.” The turnaround had prompted hopes the bank will start paying dividends again next year, having seen its shares double in value over the past year. “The focus on selling non-core businesses as well as cost reduction has improved the bank’s capital position to a point that it could return to distributing dividends to shareholders in the medium term,” said Paras Anand, head of European Equities at Fidelity Worldwide Investments. UKFI, which manages the government’s stakes in Lloyds and Royal Bank of Scotland (RBS.L), said it had agreed not to sell any more shares in the bank for a period of 90 days. The government is expected to sell the shares in several tranches. Bankers say later sales are likely to include an offering to private retail investors.