Asset Manager have fun but Regulators are watching them

The excessive wining, dining and gifts by fund companies to financial advisers may be coming to an end, as UK regulators plan to begin cracking down on this activity. Gifts deemed as an “unreasonable value” have been identified by the Financial Conduct Authority. Gina Miller, a founding partner with UK investment house SCM Private said, “such practices are widespread and penalize smaller groups that either cannot afford, or would not choose to offer the same perks.” Miller went on to say “It is all very well to cement or reward a relationship, but the extravagance of some entertainment is eye-watering. You have to question whether it influences what an adviser offers clients.” 

According to Miller, large fund companies commonly pay for advisers to attend golf tournaments in Scotland, cruises and racing events. This activity is not at all limited to the UK, as French fund Carmignac Gestion footed the bill for 15 UK advisers to see the Rolling Stones in Paris late in 2012. Italian fund Pioneer Investments invited French clients to football finals in London.

Smaller funds on the whole, agree that they are losing business as a result of these practices. Ms. Miller was recently told by an adviser that, while her fund performs well, her company simply doesn’t provide enough perks to keep their business. This reinforces the point that currently, entertainment and perks are what is driving the selection of funds. Hector McNeil of Boost ETP also shares the same concerns stating that corporate entertainment, “is a bit like product kickbacks, and lacks transparency. I think it is only a matter of time before it is banned or prohibited.”

Some advisers state that these claims are being blow out of proportion. Jason Hollands, at BestInvest which is one of the UK’s largest networks of financial advisers stated that he has not been invited to any of these entertainment events, etc. in the past year. The response from Carmignac says that it will only hold on entertainment evening event annually. This is out of over 200 client events that are specifically related to investments. Pioneer does admit that it assigns a substantial part of the budget for marketing to hospitality, but will be reducing this soon.

The notion that there should be a definition of what is acceptable and appropriate for hospitality and corporate entertainment, is growing within the industry. In addition, rules and regulations governing this is also being advocated by many, especially outside of the UK market. The lines of what acceptable and unnecessary are fine and many are simply calling for definition and regulation to lessen the abuse of the system.

Because of the uncertainty of the rules, some funds are already trying to find ways to either make these events more legitimate. Adding a business meeting or having a smaller scale event are just a few ways they are making these attempts. Charlie Hepburn of Vivid Event Group, specializes in corporate hospitality. He believes that corporate entertainment will not be totally abandoned, but will continue to exist as a means to maintaining relationships. Hepburn says, “People are still entertaining, but they are just finding new ways to do it.” How does your firm entertain its clients?

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