Its concerns include the level of charges and the explanation of them to clients and whether cheaper funds might be more appropriate. It is also asking advisers if they follow star managers when they switch firm, which could have a great deal of relevance given that there has been something of a reshuffle among the multi-manager ranks in recent months. The FSA is stressing this is just a look at present, not a full investigation but could lead to one.
No one is disputing the FSA’s right to investigate any sector. There has been a massive switch of money from vehicles such as with-profits and it is probably good that the regulator is getting to grips with what is happening.
We are a little concerned at some of the questions, in that, from what we are told by advisers, the FSA appears to be concentrating on charges, which are often standard, rather than on the much more illuminating total expense ratios.
We also believe there is, in many cases, a very good rationale for multi-manager recommendations while the ability to switch is one of the most important criteria for an efficiently functioning market.
Whatever the case, we suggest advisers put some thought into the advice process they use when they recommend these products.
It must be very annoying for investors and advisers when it is someone else’s exuberance that leads to a fall in asset prices and in their pensions and savings.
The credit bubble has, at its heart, US sub-prime lending that was badly risk-assessed and then sold on. The advice to IFAs of make sure you understand what is in the product applies as much to fund managers at global institutions too.
We can only hope that the world economy is fundamentally strong enough, that the US avoids a recession and that when many UK fund managers say this is a buying opportunity they are right.