IFAs escape with little criticism from the Treasury select
committee's report into the split-cap investment crisis, published
last week, which reserved its harshest comments for fund managers
responsible for the products.
The FSA has also been largely let off by the committee, which only
states that the regulator had not been proactive enough in
troubleshooting and that responsibility for split caps should be
brought into its remit.
However, the report accuses fund managers of a “significant lapse in
responsibility” for not fully understanding how the new-style splits
would react to falling markets.
The report says there is little doubt of the existence of a “magic
circle operating in a manner harmful to the interests of
shareholders”.
It singles out only one fund manager, Aberdeen, saying it was guilty
of being recklessly misleading in its promotional material.
The report accepts that not all split investors deserve compensation,
even if the investment was made on the recommendation of an adviser,
although it concludes that there is “little doubt there is a wide
range of cases in which it will be found that compensation is
justified”.
When outgoing FSA chairman Howard Davies appeared before the TSC last
October to defend the regulator's handling of the issue, he was
accused by MPs of “falling asleep at the wheel”. But the committee
has significantly watered down its criticism of the FSA, stating that
it was limited as to what it could do as it does not have direct
responsibility for splits.
Chartwell Asset Management associate director Sue Whitbread says: “It
is good to see that they are not insinuating that IFAs should have
been aware of something that they could not have been. But this is
only one piece of the puzzle. We are waiting to see what the FSA
does.”
Full report, p14
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