Advisers should undertake "appropriate training" before starting to advise on Real Estate Investment Trusts, warns the Financial Services Authority.
In its March newsletter for financial advisers the FSA warns: “As with other new offerings reaching the retail investment market, we expect advisers to have undertaken appropriate training before offering advice on Reits.”
It says this is “in order to ensure the suitability of advice given to consumers”, and adds “if concerns emerge over the way in which Reits are being sold, the FSA will consider undertaking thematic work in this area”.
In addition, the newsletter provides links to a set of guidelines for advisers, published by the FSA earlier this month, which clarifies the regulatory status of Reits and how advisers should approach the new type of property investment.
According to the statement firms do not need to apply to change their FSA permission in order to give advice on Reits as they are not FSA authorised firms, and as a result a share in a Reit is a share in a listed company, “which is an 'investment' in the context of the FSA Handbook.”
Dave Butler, programme coordinator at Reita.org, the promotional body for Reits, says the FSA guidance clears the way for financial advisers to be confident when advising clients on property investments, as he points out research carried out by Reita earlier in the year found 34% of IFAs were unsure if they are able to advise on Reits.
He adds: “So if a firm already has permission to give investment advice in relation to shares then it can advise clients on buying and selling shares in Reits. In the same way, if a firm already has permission to give investment advice in relation to collective investment schemes then it can advise a client who wants to invest in a Reit through a fund.”
Meanwhile, HM Revenue & Customs has published updated guidance on the rules relating to the setting up of UK Reits, which replaces the draft rules that have been available since 29 November, and covers issues including tax exempt and no-tax exempt income, capital gains, and the taxation of investors.
Although the guidance is merely a confirmation of the rules laid out before Reits came into effect on 1 January, Gareth Lewis, director of finance and investment at the British Property Federation (BPF), says the new guidance is intended to assist both Reits and investors in Reits on how to interpret and apply in practice the new legislation and regulations.
He points out while the guidance has been produced by HMRC with “considerable assistance” from the BPF, the Investment Property Forum (IPF) and the Royal Institution of Chartered Surveyors (RICS), there will “inevitably be gaps and areas where more clarity is required”.
As a result Lewis says the BPF will “continue to work with the pan-industry group and HMRC to improve the legislation, regulations and guidance and assist Reita in continuing to communicate these developments to the investor community."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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