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FSA clarifies portfolio rebalancing rules

The FSA has clarified how advisers should handle portfolio rebalancing when they do not have discretionary powers.

Speaking at the Platforum conference in London today, FSA senior associate for investment policy Steve Tully gave examples of what would be classified as a discretionary action by an adviser when rebalancing a client’s portfolio.

He said: “A customer can agree the automatic rebalancing of their portfolio.

“If agreed, at the end of each quarter for the next year that the ABC UK equities fund and the XYZ international fund will be rebalanced to represent 60 per cent and 40 per cent of the customer’s portfolio, in this example, the adviser will not be acting in discretion provided that it is a mechanical process.

“The issue would be though, that if there was any deviation from those instructions the adviser might be carrying out the discretion without consent from the customer.

“So for example, they might be acting with discretion by alternating the
60/40 split, or by deciding, actually, that the UK equities investment
should go to a fund manager. Those are a couple of examples where you need
deviation from those prior instructions.”

Independent platform consultant Stanley Kirk welcomes the clarity from the FSA.

He says: “I’m absolutely relieved that it has been clarified in such forthright terms that IFAs can rebalance provided that their platform supports it. It needed clarifying.”

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