Intermediaries are being deterred from recommending cash funds to their clients following the FSA's ...
Intermediaries are being deterred from recommending cash funds to their clients following the FSA's tightening of the rules governing recommendation of the product.
Prior to the implementation of the N2 legislation in December, intermediaries could recommend a cash fund on the basis of the rates it offered. But under the new regime, cash Isas' status as a regulated product forces intermediaries to back these recommendations with a full fact find.
Rory Percival, head of compliance at intermediary Fiona Price & Partners, said: 'It is completely impractical and I think it is a mistake. We have stopped recommending cash mini-Isas because we have to obey all of these rules and it would not be cost-effective for our clients.'
Percival said the group now recommends that clients wanting a cash mini-Isa check through the rates available in the weekend newspapers, rather than pay their intermediary to research them.
The FSA introduced the rule as part of the N2 legislation in order to ensure uniformity of advisory standards across all Isa fund products but the move has met with criticism from trade body, Aifa.
Faye Goddard, senior policy adviser at Aifa, said: 'Intermediaries will now have to give clients all of the key features. They will have to carry all of the banks' literature and know what is the best product on that day and that interest rates can change quite regularly. It is putting an unnecessary obstacle in the way and could lead to firms not recommending these products at all.'
According to Percival, should a client act on the intermediary's advice and decide to apply for a cash mini-Isa with a recommended provider, the provider will duplicate the information the intermediary has been forced to source anyway, making the legislative change even more unnecessary.
Goddard said the association will petition the FSA about its grievances and is confident a compromise can be reached.
'We are doing some work which will be passed to the FSA and we are quite sure they will do something about this,' she said.
Goddard added that although cash funds do come under the aegis of advice in its broadest sense, they should not come under the conduct of business rules because they are not packaged products.
If, in light of polarisation, intermediaries are forced to move to a fee-based world, the product will be even less attractive, she added, as intermediaries will effectively have to convince clients to pay money to be told the best rate available.
'It is just like telling someone which building society is offering the best rates,' said Goddard.
Richard Eats, director of communications at Threadneedle, said current legislation prohibits the use of Oeics for cash funds as the structure can only hold bonds and securities.
'Technically, it is a securities fund as it invests in floating rate notes and other paper,' he said. 'Unfortunately, it cannot be used as a cash Isa.'
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress