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Structured products are again in the regulatory firing line but this time it is providers – rather than IFAs – which are in the FSA’s sights.
In the latest clampdown on the much maligned products, recent guidance issued by the regulator said providers need to play a greater role in monitoring the distribution of structured products in order to reduce mis-selling.
Findings from the FSA’s recent review of the structured product market suggest providers rely wholly on distributors to identify target markets, and such a strategy increases the potential for mis-selling.
To ensure products are being sold only to suitable investors the FSA set out radical proposals requiring providers to carry out due diligence on distributors, including by investigating their activities if they have suspicions of wrongdoing.
The prospect of product providers policing IFA firms in an effort to protect retail customers marks a new front in the regulator’s war on structured products.
Whilst placing a heavy burden on providers – now tasked with considering the needs of end investors in addition to improving the design of products – it raises the spectre of a double layer of regulation for IFAs hard-pressed preparing for the RDR.
The latest FSA interest in the market comes amid growing popularity for structured products as investors seek out returns in the prevailing low interest environment.
In a survey undertaken by IFAonline sister title Risk, 58% of advisers said current low interest rates had prompted them to recommend more structured products.
Furthermore 71% of advisers think structured products offer good value for money, compared to 63% a year earlier.
The growing popularity of the products was further highlighted in September when structured product specialists SPGO launched the first structured products platform for financial advisers and institutional investors.
The latest guidance has again thrown up concerns structured products are being unfairly singled out by the regulator while other complex products escape the attention of the FSA.
But what do advisers think about the prospect of being policed and monitored by product providers? Should the FSA ultimately be responsible?
CommentDanny Cox, head of advice at Hargreaves Lansdown It’s very important the IFA takes complete responsibility for placing a particular product with a particular client. Perhaps this is the FSA’s way of making structured products more unpalatable – by increasing the workload for adviser firms and product providers. I don’t see unit trust managers being told to police who buys their funds. I don’t think we can be policed by structured providers. How does the product provider regulate advisers? How do they assess the suitability of the investor other than maybe by income or assets? You cannot expect product providers to police that. Ian Lowes, managing director of Lowes Financial Management and founder of Structuredproductreview.com Providers grant an agency to anyone distributing their products and therefore have a duty of care to make sure those products are being distributed by people who know what they are doing. In terms of advisers being policed by providers, if you are not doing anything wrong you have got nothing to worry about. It really shouldn’t have any consequences for a lot of IFAs. |
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| Comment | The structured product police: Is this a good idea? |
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structuredproduct police.
This sounds a good idea initially, however once the FSA/providers start this it will be only time before they do the same to other products The amount of administration will be horrendous. Dont forget the more time spent on administration reduces the time spent infront of clients trying to solve their problems. It used to be a ratio of 25% administrationn 75% with clients now its probably 65% administration and 35% in front of clients. All as a result of the antics of the FSA
Posted by: terry