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.”