The FCA has confirmed that appointing financial advisers to be independent directors on the boards of asset management firms would not necessarily breach conflict of interest rules.
In new rules the FCA put forward to improve the asset management sector earlier this month, the regulator said it wants fund houses to hire independent directors to sit on their fund boards in an attempt to enhance transparency in their governance.
Fund managers must have at least two independent directors on their boards and they should make up a minimum 25 per cent of board positions, the FCA ruled.
Speaking to Money Marketing, the FCA has confirmed that such a duty could be also filled by IFAs and former IFAs provided they remain sufficiently independent from the manager.
The rules set out in the policy statement include guidance on what would meet the definition of independence, such as the need to supply “input and challenge” to the asset managers’ assessment of value.
As for any other eligible independent director, IFAs may be asked to fulfill other tasks on boards, taking into consideration remuneration and conflict of interest rules, the FCA says.
IFAs must also have “sufficient expertise and experience” to make judgements as to whether the asset manager is managing the scheme in the best interest of investors.
The rules say the independent director could have gained the expertise through professional experience, public service, or academia, and does not need to relate to the financial services industry.
The FCA estimates that the hiring of new independent directors to fund management boards will cost firms a total of nearly £28m a year. It said there will be a need for 480 non-executives overall.
Postcard Planning director Rohan Sivajoti says: “It’s about managing any conflict of interest if your client has money with that asset management firm. I might consider it but it has to be separate from our fund selection approach.”