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FSA sounds misselling risk over absolute return funds

The FSA says absolute return funds pose a misselling risk as advisers may not have a proper understanding of the products.

The regulator’s latest Retail Conduct Risk Outlook paper, published today, says consumers may not understand the complexities of absolute return funds and may believe there is an element of capital protection, or guarantee of a positive return.

It adds that complex strategies and structures used in absolute return funds “raise questions about their suitability for all types of retail investors”.

The FSA says: “Financial advisers may not fully understand these products, which increases the possibility that poor communication of investment risks contribute to misselling to consumers.”

The FSA is currently undertaking work to assess the extent of the risk posed by the funds.

It also reiterated its scrutiny of exchange-traded products, which have a “wide range of structures with some investing in riskier and more exotic markets”.

The FSA says: “Consumers or their advisers may not fully understand ETPs and consumers may therefore suffer detriment if they are sold a product unsuitable to their risk appetite.”

Over the last 18 months the FSA has conducted thematic visits to a number of firms who account for a significant portion of the EU exchange-traded product market.

 It found some evidence of poor practice in UK-authorised firms and has asked firms to address the risks found.

The FSA says: “We are working closely and effectively with the Financial Policy Committee and other EU regulators, to mitigate risks where we are not the lead regulator. Some issues require a coordinated response from the EU. This work is ongoing.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Just look at those headlines. 7 highly negative statements. Either the media are stirring the proverbial wooden spoon or the FSA is now highly neurotic. Or both.
    After 25 yrs of regulation; after 12 yrs of FSA rule; after 6 yrs of RDR propaganda it appears that there is absolutely no improvement in the industry at all. Yet we all know that is not true.
    So just what is the FSA agenda? Has it really lost all contact with reality? Can it really find nothing good to build on?
    Do Parliament really not see that there is a massive conflict of interest in the way regulation works in this country?

  2. You muppets!

    You let fund managers introduce funds called absolute return and then you wonder why people think they will always get a return.

    This is what you’re supposed to be there for. Not the micro managing of small businesses.

  3. Amazing. The FSA are surprised ? Nobody else is. If it sounds too good to be true it usually is. A product that makes money whatever the market does,that’s Christmas, Ramadan, Diwali and any other celebration rolled into one.

    If we did away with the FSA who approved such goofy schemes in ther first place we wouldn’t have so many problems like this. Or are they just storing up problems to justify ther existance.

  4. Guaranteed (er capital protected, or is it structured now) products all over again……. The FSA NEVER learn from their mistakes.

  5. The FSA should have given these warnings when these products first appeared.
    “..may believe……a guarantee of a positive return..” Well yes, well spotted.There is every chance that if the fund objective is stated as being along the lines of because our fund managers are so clever and use lots of financial instruments we are aiming to produce a positive return whatever the market is doing, then clients will be somewhat disappointed if at a twelve month review they are told that the fund has lost 5% or whatever. But the point is if the FSA think that this was open to misinterpretation they should have made noises at the time. Any idiot can be wise after the event-those of us who declined to commit to absolute return funds emerge from this with much greater credit than the FSA. Not saying much I agree…..

  6. What will the next headline be?…..

    ‘FSA warns of misselling risk whenever an adviser sits down with a client’.

    There is potentail missell of a cash deposit fund if it’s not positioned for the client properly and the risk issues not ventillated- and put in writing in the report.

    Just get off our backs you bunch of incompetents.

  7. Nothing new. FSA caught with its pants down…again. Cru was advertised as an AR fund.

  8. The funds are trying to achieve average returns in good and bad conditions. Hardly sounds like a crime does it.

  9. Hands up who thinks these funds always provide a positive return…

    These funds, which can invest in a wide range of assets including convertables and futures, are only targetted to provide returns in most market conditions, they’re not guaranteed to do so.

    I expect it’s only our masters at the FSA who don’t understand that…

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