Aifa concerned by FSA guidance on structured products
Share
The Association of Independent Financial Advisers says it has “real concerns” about some of the FSA’s recent guidance on the structured product market and is forming a working party to address its impact on firms.
Aifa has called for members to provide evidence on the impact to firms from FSA guidance which was issued on October 27.
The guidance includes a template for firms to use where they receive a complaint about a structured product sold related to Lehman Brothers as well as a retrospective review of previous advised structured sales processes.
Aifa’s first meeting will take place on December 4 and will focus on the direct impact of the guidance, particularly around concentration of assets risk, the assessment that structured products are not suitable for risk averse customers and the contagion risk of the approach to the concentration of assets.
Aifa director Robert Sinclair says: “We recognise the potential impact of the regulator’s guidance on members and are calling on interested parties to provide us with feedback on this issue. We would also welcome members’ participation in a working group set up to address the main concerns of firms. This will allow us to demonstrate to the regulator the effect this guidance will have on the advice profession.
“Some errors were made in the advice process that we must learn from. However, we have real concerns with some of the assumptions made in the recent guidance published by the regulator.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Readers' comments (16)
Anonymous | 30 Nov 2009 12:59 pm
I find it very interesting that someone can invest into an NS&I Guaranteed Equity Bond on-line with no advice or check as to suitability. Whilst capital is guaranteed should this really be happening in the FSA's own back-yard? Pot and Kettle spring to mind!
Unsuitable or offensive? Report this comment
graham worrall | 30 Nov 2009 1:02 pm
All of our advice on investing for clients will be vulnerable to retrospective review by the FSA until and unless the FSA agree to define the terms they insist on using. If the FSA continue to insist that IFA's assess teir clients' 'attitude to risk' and then match our recommendations to it, the FSA must surely be obliged to define those terms before they can retropsectively use them in judgement against us -after the event. What exactly is a human being's attitude to risk? what is a fund or product which scores on this kind of risk scale and if events transpire which give the lie to the grading of a fund or product then IFA's can't be to blame surely? We all remeber the Regulator implying that with profits funds were low risk and then telling us that they were high risk-now we seem to have guaranteed funds with guarantees underwritten by highly rates banks (e.g Lehmans) now -after the vent-reclassified. IFA's can not go on playing this game with the regulator-the regulator must either abandon its notion that IFA's can somehow classify clients and products/funds in relation to risk whilst no one else seems to be obliged to stand by their own such classification and whilst the world and its ongoing developments shows us that classification by risk is not possible.
Unsuitable or offensive? Report this comment
Man in Black | 30 Nov 2009 1:03 pm
The concentration risk issue is hardly new - check out FSA's take on it in the Lloyds TSB case...
...I would however suggest that we are once again in "retrospective" territory because AIFA, PFS, IFP, uncle Tom Cobley and all have never gotten their act together in agreeing some meaningful Guidance at detail level.
For all their faults, FSA does have a mechanism - "confirming industry guidance" - whereby it ought to be possible for those in the know (i.e. us and not FSA's Policy Dept) to draw up guidance on how FSA's higher level rules could be interpreted and applied.
OK, its not fail-safe, but it does create a fairly clear presumption that those following such Guidance are then meeting FSA rules and principles...and prevents retrospective filling of details like this...
We have been hearing about "stakes in the ground" for years now, but where's the substance when we find ourselves in situations like these?
Unsuitable or offensive? Report this comment
You must be joking | 30 Nov 2009 1:12 pm
Having read the FSA's "review" on structured products, it was clear that this was very much a case of "where's that bloody horse gone?" and certainly showed little understanding of why clients do, and don't, use structured products.
Nothing in life is GUARANTEED, as any guarantee is only as strong as the institution behind it, this includes NS&I and Gilts - just look at the mess in Dubai with, supposedly "government backed companies" trying to restructure debt repayments.
Clients are fully aware of this fact, or should be, and that should be the end of it.
2009 will go down as the year that the FSA decided that "No investor should ever lose money" and set about destroying both our free market economy and the associated investment markets!
Unsuitable or offensive? Report this comment
Anonymous | 30 Nov 2009 1:20 pm
In todays world High Risk, Medium Risk, Low Risk and No Risk no longer exist.
There is out there simply Risk. Clients understand that, IFA's do as well - all investment creatures do.
One day the FSA will catch up and we will all welcome them to the real world.
Unsuitable or offensive? Report this comment
Bob Donaldson | 30 Nov 2009 1:47 pm
We are supposed to have 20/20 vision as advisors plus the ability to gaze into a crystal ball to see which companies are going to go bust.
It seems fine that the banks can foul up on a massive scale and nobody falls on their sword. When it comes to advisors we cannot make a mistake.
Mistakes do happen and providing the client is given the facts to make an informed decision about the investment they are about to undertake so be it.
As previous commentators have said, I do not know of any investment that does not carry risk, including cash on deposit.
I have a case ongoing with the ombudsman where the client was gi
Unsuitable or offensive? Report this comment
Anonymous | 30 Nov 2009 1:48 pm
That word Guarantee again!!
Dont you all realise that it only means Guarantee if an IFA goes near it, but has a totally different meaning when quoted by the FSA.
Dont you recall the FSA telling people that DB schemes were Guaranteed when reinstating previousley TVd people. How many of them now find the word Guarantee did not mean Guarantee. Should the FSA not go back, review all such cases and compensate? (Oh - that would be with our money of course.....!!)_
As for TCF, the FSA sit back and watch Equitible life policy holders die even though they have been ruled against. If an IFA did this, we would be locked up.
If the FSA did its primary function correctly and looked in detail at the macro situation, we would not have any issues as we would not have had the problem of counterparties going bust. But thats too difficult isnt it...........
Unsuitable or offensive? Report this comment
James | 30 Nov 2009 2:09 pm
Anonymous at 13.20....rubbish,your pocket book guide to risk is utter tripe.Just as well you posted anonymously,or the FSA should come and feel your collar if thats your view.
As for clients understanding that fact,more rubbish,clients understand what they are able to work out themselves (sometimes) and mostly what we,as advisers tell them.If we tell them a product is low risk and we know that to be a lie,then they understand nothing.
Risk is alive and well in all its catagories,as it will always be.Some previously safer catagories may have moved up,but low to high and everything in between still exists.
Unsuitable or offensive? Report this comment
You must be joking | 30 Nov 2009 3:10 pm
James - actually, the only thing that can be said about "risk" is that it changes continually.
The risk of buying UK equities in 2007 was HIGHER than the risk of buying UK equities in March of this year.
The risk of buying Gilts now is extremely higher than buying Gilts this time last year.
Whilst undoubtedly there is always risk and some things are generally lower risk than others, the level of risk changes continually.
When it comes to structured products there are actually four different risks:
Counterparty - potential total loss of all capital
Investment - loss of capital due to "market" performance, i.e "barriers breached"
Investment - loss of potential growth, i.e. index outperformes structured return
Investment - return of capital only (where a deposit account would have produced something at least)
The biggest problem our industry has is quantifying the first of these, i.e. Lehmans
The other three are all "floating risks", i.e. the risk of these will change continually depending upon the economy and product terms etc
Unsuitable or offensive? Report this comment
Paul | 30 Nov 2009 3:42 pm
dont forget TAX risk - an inflexible plan exit date and ever changing tax rates and regimes might lead to unforseen tax bills; what if the CGT free allowance dissapears, what if CGT goes back to highest rate of income tax, what if...etc...no doubt the IFA will of course be to blame
Unsuitable or offensive? Report this comment