The FSA says that firms can be independent and still recommend distributor-influenced funds, according to its latest guidance on the vehicles.
In the guidance, published today, the FSA repeated the difficulty of being independent and recommending a Dif, but stopped short of saying that it is not possible to do this.
It said that in such circumstances it expects to see evidence that the advice is suitable, made following a comprehensive and fair analysis of the relevant market in an unbiased and unrestricted manner, in the customer’s best interests and in accordance with conflict of interest requirements where distributors are expected to manage such conflicts.
In communication with clients, the FSA said distributors are required to document why recommendations are suitable, disclose all sources of remuneration and inducements, communicate the overall effect of charges including the cost of the fund, disclose conflicts of interest, explain ongoing reviews, explain the features, advantages and disadvantages of the Difs and explain the issues for non-advised sales or default funds.
The FSA says it does not propose changing the ‘distributor-influenced funds’ term but says firms do not need to use this when recommending such investments to clients.
In the guidance, it says distributor-influenced funds are distinct from the operations of fund managers, collective investment scheme operators and private client investment managers for whom investment management is central to the business proposition.
The FSA says: “It is unlikely to be fair to allow non-advised sales methods of distributor-influenced funds and to allow distributor-influenced funds to be sold as default funds.”
It said that those wishing to do this, would have to consider how it was to be done in an acceptable manner.
The guidance confirms that firms advising on Difs will not be able to receive a share of the product charges as remuneration and only receive an adviser charge or consultancy charge in compliance with RDR.