I’ve written about the FSA’s apparent campaign against unregulated funds before, but in light of today’s news I think it is a subject worth revisiting. After all, the regulator is gearing up to issue a consultation paper with proposals to ban all marketing of the products.
In today’s announcement, head of retail enforcement, Tom Spender, stressed that Ucis and other non-mainstream investments are “very often high risk, complex products, which are not appropriate for most retail investors”.
To underline what it classes as retail investors, the regulator was keen to highlight the back story and details about the banned IFA Patrick Francis O’Donnell’s clients, which included a “fork-lift driver and his wife” and a “mother earning a small salary and a supporting a dependent son” who invested their pensions in Ucis.
Extraneous detail
The IFA clearly mis-sold and I have sympathy for his clients, but why all the extraneous detail? Can a fork-lift driver not be a sophisticated investor as well? This, remember, from a regulator which was accused of using over-emotive language following its recent “death bonds” attack on traded life policy investments (TLPIs).
The FSA has been investigating Ucis mis-selling for years and was right to raise these issues. After all, EEA, the market leader in TLPIs, has stressed itself that its Life Settlements Fund should never have been promoted to the vast majority of retail clients.
However, following the FSA’s attack, and subsequent redemptions, EEA was forced to suspend its fund, and there is a school of thought that this may ultimately have done more harm than good.
As James Calder, head of research at City Asset Management, told us this month: “We analysed TLPIs in detail and while we liked the steady returns, our view was that there could be a liquidity squeeze at some point, which the FSA actually created itself.”
Excessive redemptions
‘Contagion’ is the buzz word these days and, if we think back just a few years to problems affecting hedge funds, and commercial property funds in the retail space, bad press quickly leads to excessive redemptions which don’t really help anyone, from the investor to the fund manager.
If, as appears to be the case, the FSA is to continue its campaign against Ucis then it has to tread carefully because it too is not immune to being accused of acting irresponsibly.
A full rundown of the FSA’s research, and the arguments for and against Ucis funds, is featured in the June edition of Portfolio Adviser, out next week.
