Advisers have attacked the FSA’s decision to impose a retrospective review of the structured product market following its investigation into Lehman-backed plans.
Independent Personal Financial Management director Luke Gibbon is writing to Conservative MP Anne Widdecombe, urging her to look into the retrospective element of the FSA’s review after she criticised Sir Thomas Legg’s retrospective inquiry into MPs’ expenses.
He says: “IFAs did not really think about counterparties until Lehmans. Action should be taken against bad advice but I get angry about retrospective reviews by the FSA who can pontificate over whether something is done correctly after the event.”
In its review, the FSA insists it was careful not to apply the benefit of hindsight to the period before Lehman’s insolvency. Yet in the “expectations” section, the FSA says advisers should have considered the financial strength of the underlying counterparties in line with customers’ attitude to risk and highlights widespread disclosure failings in this area.
Advisers say the FSA made no mention of counterparty risk in a 2004 consumer factsheet on capital-at-risk products.
John Joseph Financial Services principal John Joseph says: “There was nothing about counterparty risk. They are judging people in hindsight with today’s knowledge.”
The FSA says the factsheet was intended to highlight to consumers some of the risks but it was never intended as a replacement for advice or a tool for advisers. A spokesman says that a retrospective review is justified by the widespread nature of the failings uncovered.
He says: “This is not just simply the issue of whether clients were advised about the underlying guarantee, it is much wider than that and the report points to a variety of failings but also good practice by advisers.”
Chelsea Financial Services head of investment products Matthew Woodbridge says: “IFAs are not credit analysts, so they may have to employ the services of specialists if they want to continue giving advice on retail structured products.”