The FSA has called on advisers and clients to ensure they have their priorities straight over what they want to get out of investing in a fund of hedge funds.
It believes some advisers are overly concerned with having limitless knowledge of the issue to ensure they are not in breach of treating customers fairly when there are more pressing issues.
Head of EU policy Tim Grange told a Money Marketing round table meeting on hedge funds last week that although there needs to be some level of understanding for clients, the most important thing is they realise that, as with most products, there are a variable number of outcomes they could deliver.
He says: “It is a bit like the analogy of the car, you need to pass a test to drive one but that does not necessarily mean that you need to know how the brakes and the clutch work.”
Grange said the FSA had a choice of whether to ban or accommodate these products in the retail market and it would prefer not to stem any tide of progress. He said: “A number of strategies within Ucits III that are possible, although yet to be taken up, do mimic the assets of a hedge fund. In a sense, the horses have bolted, you can either try to stop them or let them exist in the most highly regulated part of the market.”