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FSA redemption yield move for bond fund ads

Bond fund managers will be forced to display both the running yield and gross redemption yield with equal prominence in their ads following FSA intervention.

In a bid to clamp down on potentially misleading ads which only display a high running yield, the regulator last week issued guidance insisting that all promotions give equal weight to the redemption yield, which is often the lower of the two.

The FSA hopes this will mitigate the practice of fund managers taking charges from underlying capital instead of income, which enables them to promote a better headline rate.

The guidance also stipulates that fund managers must state in the main body of an ad that the running yield or capital can fluctuate and that the redemption yield is not guaranteed. IFAs have welcomed the move as a step forward in investor education but fund managers doubt that it will make ads clearer.

M&G managing director Phil Wagstaff says: “It will create a level playing field for providers, some of which have misleading ads, but the yields are hard to explain and it will make ads quite complex for investors.”

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