Financial watchdog should scale back scope of investments to be offered by independent advisors, associations says

Written by Ray Clancy

Monday, 11 January 2010 09:47

Independent advice firms could be forced to offer restricted services unless the Financial Services Authority scales back its definition for retail investment products in the distribution review, it is claimed.

According to the Association of Independent Financial Advisors (AIFA) the scope of products the FSA now wants advisers to consider, including structured investments and exchange traded funds, is simply huge. It is concerned it will be difficult for firms to research the market effectively.

In last June’s Retail Distribution Review consultation paper, Delivering the RDR, the FSA proposed a new definition for retail investment products to which its independence requirements will apply.

It said, in addition to the current packaged products, retail investment products should include unregulated collective investment schemes, all investments in investment trusts and structured products.

It said that advisers should consider other investments which offer exposure to underlying financial assets, including ETFs, as well as hedge funds.
‘We have expressed our concerns to the FSA about the breadth of the independent label. The scope is simply huge and a shocking unintended consequence could be independent firms forced into the restricted space,’ said AIFA director general Chris Cummings.
‘Firms are going to have to include products like synthetic ETFs. I read recently the value of whisky has not dropped in 50 years. Are IFAs going to have to consider whisky as an investment category?’ he said.

‘We don’t want to get into a position where just because a new product has come on to the market, advisers have to give it an in-depth review and start advising on it,’ Cummings added.

The FSA is set to publish its final requirements for adviser labelling and the implementation of adviser charging in the next couple of months.

Cummings welcomed the FSA decision not to form an Independent Professional Standards Board. ‘We were worried that the extra costs imposed by this new body would outweigh any potential benefit. We do support the proposals for a new Register of investment advisers as a way of helping consumers understand which adviser is independent and which are bank sales staff,’ he explained.
‘We look forward to working with the FSA on the detail of this announcement and will respond in full to the consultation. At these difficult times any cost to the IFA profession must be considered carefully,’ he added.