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Execution-only firms face EU fact-find threat

The FSA is to import new European Union conduct of business rules which would force people buying investment funds and pensions from a provider for the first time to complete a fact-find.

The move threatens the survival of execution-only business on pensions and investments. It comes after lobbying by the investment industry toned down the original proposals which would have required the completion of fact-finds for all transactions.

The conduct of business rules only apply to investment funds but the FSA says it will extend them to pensions from the account opening stage, including online transactions.

A spokeswoman says: “We would not start to carve out exemptions. It would be for us to work out the pension angle.”

IFAs already operate above these minimum standards but discount brokers, fund supermarkets, stockbrokers and others will be forced to carry out an initial fact-find.

The new rules have been agreed by the Com-mittee of European Secur-ities Regulators but it has yet to publish its paper. The FSA says it will issue a consultation on the subject later this year.

Hargreaves Lansdown head of research Mark Dampier says: “This is an insult to the client – you are telling them they are not able to take investment decisions. It is fundamentally absurd and will bog down the whole transaction process. Either you have execution-only business or you do not. Only bureaucrats with no experience of investment could come up with ideas like this.”

Torquil Clark market-ing development manager Philippa Gee says: “This will affect our business systems, both on cost and in the service delivered to clients. We want to hear the full facts on such a crucial issue before we hit the panic button.”

Pretty Financial director Kim North says: “Many bigger firms have been assuming they can go AFA and continue to subsidise their business with a lot of execution-only business but this would mean a massive difference. However, getting rid of execution-only business will be a godsend for smaller IFAs.”


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