The FSA is warning consumers off investing in Isas linked to hedge funds, saying they should not assume a product is straightforward just because the provider's name is familiar.
The alert is posted on the FSA's website, where it describes hedge funds, which it does not regulate, as “exotic financial products”. The FSA says:
“Isas sold by some well known names invest in shares that are linked to hedge funds and issued from outside the UK. Consumers will need to check they will be covered by the UK complaints and compensation schemes if things were to go wrong.”
The move comes as hedge funds are being targeted at lower-income investors for the first time, with providers such as Henderson and Deutsche Bank offering funds of hedge funds in an Isa wrapper.
FSA director of consumer relations Christine Farnish says: “The more exotic Isas being offered can be difficult to understand and the costs and charges may not be clear, so they may well not be appropriate for most consumers.”
Simpsons of Brighton IFA partner Andrew Merricks says: “The people selling these funds are almost implying returns of 12 per cent a year. We all know you cannot get that without a level of risk. The FSA's warning will act as a cattle-prod to an IFA seeing a bandwagon rolling into view.”
Matrix Securities director Bridget Cleverley says: “I think this is sensible advice. The Isa wrapper tends to give the underlying product anonymity. People think they are just buying an Isa rather than what is in the wrapper.”