The FSA was explicit this month: advisers cannot rely on investment opinion. So where does that leave those caught up in Arch Cru?
The number of outsourcing evangelists appears to be growing. And, according to this expanding group, the complexities faced by companies carrying out the investment function in-house are becoming too numerous to mention.
Though there has always been an element of self-interest in this semi-scaremongering, recent comments from the Financial Services Authority (FSA) appear to be fuelling the debate.
Speaking at a Defaqto conference in July, FSA technical specialist Rory Percival outlined the risks advisers face when fund-picking, particularly when they base decisions on third party information.
You cannot rely on opinion. Fact.
“If you are given factual information, it’s reasonable for you to take that at face value. For example, if a fund manager tells you he invests in X, Y and Z assets, we don’t expect you to undertake any more due diligence than that,” Percival said.
However, the meat of his comments came when detailing where advisers had to tread more carefully.
“If it’s an opinion, you can’t [rely on it], because the intermediary is there to form his own opinion; to use his own critical faculties to assess whether the investments should be recommended to clients.”
Christopher Wicks, director at Bridgewater Financial Services, said Percival’s comments were “common sense”. He added: “It is only sensible that advisers define what they mean by risk as part of their investment process and then benchmark their recommended investments against this. They should not rely on the fund managers or anyone else to do this because it is quite likely that there will be a mismatch.”
The FSA’s position was further emphasised by the way it is dealing with the Arch Cru case, where hundreds of advisers will compensate clients if they are found to have mis-sold its funds.
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