FSA criticises Ucis marketing and pledges more 'intrusive work'

The Financial Services Authority (FSA) has criticised the marketing of unregulated collective investment schemes (Ucis), warning the incentives attached to the products and their unregulated status were not always properly disclosed. 

FSA head of savings and investment Linda Woodall (pictured) said IFA and fund manager reputations were at risk due to a lack of concern over Ucis and its suitability for clients.

‘You will see that the FSA has material concerns about the design, promotion and advice on Ucis. We intend to do further intrusive work in 2011 in this area,’ said Woodall, in a speech to fund managers last week.

Woodall voiced concerns about clubs and consortiums which are used by Ucis fund managers to push products to IFAs.

‘Such clubs and consortiums promote the products to the financial advisers in their membership and get payment from the asset managers for doing so,’ she said.

‘This payment has been called a marketing fee, but in some instances it is actually a disguised commission payment which should be disclosed to the customer, but from what we have seen is not.’

She criticised consortiums for the standard of training offered to IFA members and warned of bias. ‘We are aware that some asset managers have also been actively involved in providing training and presentations at various sessions run by these groups, and elsewhere, and would strongly recommend that if you are one of these, you ensure they are balanced,’ she said.

Woodall added the marketing attached to Ucis in some cases did not make it clear to advisers and investors the unregulated nature of the scheme.

Woodall called for Ucis fund managers to whistle blow on small IFAs who put disproportionately large volumes of client money into Ucis. She warned fund managers they faced severe redemptions from Ucis products in falling markets if they were lax in allowing inexperienced clients to invest.

The FSA’s thematic review of the Ucis market led to 11 firms being required to carry out a skilled person review. Six have been referred to enforcement.

The FSA has published a factsheet outlining its guidance on advice on Ucis, which you can read here.