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FSA could intervene in DIFs market

The FSA is monitoring the distributor influenced funds market and says it will intervene if standards do not improve.

The regulator estimates that there are at least 40 firms offering DIFs to their customers, with around £2bn of assets under management in DIFs in the UK, involving the assets of over 10,000 investors.

In its Retail Conduct Risk Outlook published today, the FSA says it has concerns over whether DIFs are more beneficial to adviser firms than clients, as DIFs generally carry higher charges.

The regulator is also worried about how firms manage the conflict of interest of being incentivised to recommend DIFs and the obligation to ensure advice is in the client’s best interest.

It says another key risk of DIFs is the complexity of charges, as customers cannot clearly gauge what service they are being charged for and whether the fund offers value for money.

The FSA says: “In our ongoing supervision of firms, we have looked at files where DIFs have been recommended. Results have been mixed, with too much advice showing signs of unsuitability or a lack of key information on which to form a final assessment about the suitability of advice.

“Firms with DIFs should understand that we have concerns over this market and we would expect them to pay particularly close attention to sales processes here and the quality of their advice, including their obligations under the client’s best interests rule. We continue to monitor this market and expect standards to improve. If not, we may need to intervene to ensure customers receive the right outcomes.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I am distinctly coming to the conclusion that you can’t win in this job.

    The regulator is constantly not happy. Wasn’t a little while ago that they disliked fund of funds due to the charges, with profits funds, wraps etc etc , the list just goes on and on.

    Please tell us what you are happy with and then we can have a track to run on.

    Is it the press or is the FSA. Instead of being negative try and be positive.

  2. Understand where you are coming from Bob D, however, they have no idea what the word ‘positive’ means!

  3. SJP is "Mr Big" when its comes to Distributer Infl 28th February 2011 at 4:17 pm

    Watch out SJP your game is up and the FSA are onto you!

    SJP is “Mr Big” when its comes to Distributer Influenced Funds and these concerns must surely focus on the largest users of such funds, which can increases costs and complexity and reduce choice.

  4. Most IFA’s cannot recommend investments. They make choices based on what is best selling and no facts.

    Distributor influenced funds are expensive and no better in the selection process but at least they have a process in place to which make decisions against.

  5. Nasty grubby broker funds

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