Advisers must ensure that regulators heed their warnings

Almost all investment advisers will have come across a fund which they didn’t like the look of. Many will have tried, usually with limited amounts of success, to alert the regulator.

They may have offered a view about these dreadful Ucis schemes or that risky structured product on a Linkedin group or on Twitter. Their adviser peers may have added their disapproval, but in the past that may well have been that. It seems, however, like the regulator wants this situation to change – and quickly. It is hoping the industry will help it gather intelligence about the market so that it can nip things in the bud.

This message was certainly sent out by FSA director of supervision Clive Adamson at the recent FSA asset management conference. But how will work in practice?

In the past, advisers’ warnings to the FSA have fallen on deaf ears.

In conversation with TCF Investment’s David Norman recently, Mr Adamson suggested that the trade and professional bodies should consider setting up boards of experts to channel concerns to the FSA and from about mid next year, the Financial Conduct Authority that will replace it.

This approach is not without its downsides. The bodies involved might become even more like quasi-regulators and that could be seen as restricting their freedom to oppose the regulator when necessary. There is a grand history of the bodies themselves maintaining competing and conflicting views. Their views on products may be no exception.

There are several factions in the adviser market – defined at least in part by attitudes to different types of products – whether advisers are pro or anti structured products.

One IFA’s attractive investment proposition is another adviser’s poison. There is also the question of appropriateness, where it may not be the product but the product’s lack of suitability in many situations that is at issue, or perhaps the economic situation may undermine the case for an individual product or even a range of them.

Finally, many investment advisers may not like the FSA’s product-banning powers or may feel that they have already been applied rather clumsily. They may feel that to engage with the regulator’s intelligence gathering is to engage with these banning powers and they are probably correct.

Yet most of these objections are surmountable. First, investment advisers do not have to engage with any process, while for those that do, it may be evident which products are really beyond the pale.

In addition, the market will only be steering the regulator in the right direction – the FCA will be doing the regulating.