In its July Financial Advisers Newsletter, the regulator published the findings of a recent review undertaken using data supplied to it by lenders and found firms which had accumulated clawback debts tended to have other problems which would be to the detriment of clients.
It said: “We researched the position of around 150 financial advisers, either because the providers reported commission clawback debts owed by the firm, or because the firm had previously shown evidence of financial weakness. We then visited 15 financial advisers where we had the most concerns and found they tended to have poor systems and controls and selling practices.”
The FSA said the firms it reviewed were only adequately establishing customer risk in a third of cases, compared to the industry wide average of 75 per cent.
It promised it would target firms with clawback debts in future, especially those with debts with more than one provider, large debts in relation to their size and those firms which were being targeted for legal action by indebted providers.
Bill Warren, associate director of the Regulatory Association of Mortgage Packagers, commented: “Clawback debt is a clear indication that something is wrong and I think it’s reasonable that the FSA should look at it. I’m not so much surprised but disappointed at this news as there have been so many warnings over controlling affairs and I’d be embarrassed if I had debts with a lender. Although, it’s not always the adviser’s fault as they may have just fallen on hard times but it will unfortunately add further fuel to the Retail Distribution Review.”
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