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Advisers warn FSA over sending out jumbled message on ETPs

Investment advisers say the FSA’s latest guidance on exchange traded products is sending a “jumbled message” on what products advisers need to consider to be independent.

The FSA published a factsheet for investment advisers this week which outlines key features, investment strategies and the potential for conflicts of interest within exchange traded products.

The regulator says advisers using an exchange traded fund should ensure it complies with the European Commission’s Ucits directive on the level of portfolio diversification, segregation of assets and restrictions on the types of assets the fund can buy.

They should know whether the exchange traded product lends out the underlying securities it invests in or whether a synthetic swap-based investment strategy is used instead.

The FSA says that advisers should also be satisfied with how each exchange traded product provider manages conflicts of interest, particularly where providers are affiliated to third parties providing services such as stock lending or selling swaps.

Pilot Financial Planning director Ian Thomas says: “The FSA has been encouraging advisers to look to these kind of products to demonstrate independence but it now seems to be backtracking on that.

“Obviously, advisers need to know what they are doing in recommending exchange traded products but the message coming across is a little bit jumbled.”

Lift Financial joint chief executive Joel Adams says: “The new independence requirements are going to force advisers to broaden their propositions and include assets such as exchange traded instruments.

“Exchange traded products clearly have many benefits but advisers do need to make sure they understand the structures they are recommending.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Give it 12 months and the FSA will decide that they are too toxic like life settlements and ban promotion to retail clients anyway!

  2. The FSA really don’t know what they’re doing.

  3. The FSA has stated you have to undertake a comprehensive and fair analysis of the relevant market. In short if etp’s wouldnt fit your client base, you wouldn’t have to consider them but could still remain independant. Much like UCIS.

    This report above has little to do with independence and is more to do with ensuring due dilligence is carried, and let’s face it, if some had done that on investments such as Keydata correctly we would be looking at picking up the bill. this is just a gentle reminder and dare I say it, useful information on these products, but of course its easier to criticise and look for the dark side all the time.

    So sorry, I’m not sure I agree that this ‘jumbles’ things?!

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