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FSA sets out new guidance on distributor influenced funds

The FSA has today issued guidance on distributor-influenced funds and highlighted how the RDR will impact on them.

The regulator says firms that advise on Difs post-RDR should not receive a share of the annual management charge for their role on a Dif governance committee and the adviser charges should not be “inappropriately” different to other suitable or competing retail investment products.

The FSA reiterated its stance that it will be extremely difficult for firms to recommend Difs and meet RDR requirements for independent advice.

The regulator is consulting on rewording its DIFs factsheet and has highlighted key areas surrounding Difs which it is looking to change.

The new factsheet includes a section which suggests that avoiding capital gains tax liability may not be a good enough reason for recommending Difs for certain clients as they could benefit from making use of their annual CGT allowance each year rather than building up liability over time in a Dif.

Key concerns in the factsheet are whether firms’ staff are competent with Difs, if conflicts of interest are managed effectively, if firms can ensure the product is suitable for each client to whom Difs are recommended and whether the impact of charges are managed and disclosed to clients.

It also questions what advice tied or restricted advisers who only recommend Difs will provide if a Dif is not a suitable product.

In September, FSA head of investment policy Peter Smith said advisers would find it difficult, but not impossible, to recommend Difs and remain independent.

Smith said: “Any conflicts of interest need to be managed in a way where the firm ensures it is providing unbiased and unrestricted advice. We are aware some firms recommend their Difs to the majority of clients and we are concerned this undermines their position as independent today, never mind in the future.”

More to follow.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. at last they start to take action. more needed

  2. Totally agree with what they are saying (for once!).

    Especially this line:

    “The regulator added avoiding capital gains tax liability in a Dif may not be a good reason for recommending Difs as some clients could benefit from making use of their annual CGT allowance each year rather than building up liability over time in a Dif.”

    Something I have been saying for years – wrapping investments in an OEIC or DIF is potentially a way of making *sure* your CGT allowance is not used!

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