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FSA considers sparing VCTs from Ucis clampdown

by Rachael Revesz on Feb 12, 2013 at 10:59

FSA considers sparing VCTs from Ucis clampdown

The Financial Services Authority (FSA) is reconsidering whether venture capital trusts (VCTs), real estate investment trusts (Reits) and exchange traded products should be included its incoming clampdown on unregulated collective investment schemes (Ucis).

David Geale (pictured), FSA head of investment policy, has written to the Association of Investment Companies (AIC) to say the final Ucis paper, may exclude these investments, which would ensure they could continue to be marketed to retail investors.

The FSA’s Ucis consultation paper, published in August 2012, classed VCTs, Reits, and exchange traded products as ‘non-mainstream pooled investments’, proposing to ban their promotion to ordinary retail investors.

Geale told the AIC the regulator was considering amending this proposal ‘to find the right balance between consumer protection and choice’.

The proposed amendments will also affect offshore investment companies that would meet investment trust criteria if based in the UK, enterprise investment scheme funds and seed enterprise investment scheme funds.

The FSA is also considering whether it is appropriate for firms to allow high-net-worth individuals to benefit from certain schemes, including Business Property Relief and Business Premises Renovation Allowance.

Any amendments will not be confirmed until April after being considered by the Financial Conduct Authority board.

17 comments so far. Why not have your say?

NeilG via mobile

Feb 12, 2013 at 11:24

Well that's very good of them. Perhaps they do have a modicum of understanding of consumer needs after all?

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Bob Win

Feb 12, 2013 at 11:26

What, the Treasury influencing FSA regulation? Restricting the promotion of BPR qualifying schemes? Surely not....they'll be freezing the IHT limit next.

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Hickky

Feb 12, 2013 at 11:42

Why dont they limit ETF to be sold only in a discressionary portfolio where there is constant monitoring of a portfolio? These funds are mainly used for short term investment by professional firms, are often synthetic and hold greater risks than, say, a tracker unit trust that has similar charges. With the new fee structure on funds, these should not be part of a mainstream investors long only portfolio.

Is it our job to recommend investment into Seed Enterprises, as the scheme seems to be aimed at self investors, and risks are huge, far beyond normal, and totally unquantifiable. Ban them I say.

Schemes that use BPR and BPRA need close examination, but have their uses. However recent investigations into some of these schemes make me slightly wary of the methods of reducing IHT quickly. As long as the revenue consider these to be acceptable going forward, we should be allowed to advise, but only as a last resort.

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Paul Howard via mobile

Feb 12, 2013 at 11:54

Well thank goodness this isn't getting complicated.

One would have thought sorting all this out prior to RDR might have been a good idea?

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yellow army

Feb 12, 2013 at 12:05

why don't they just ban everything except for regulated funds. that way investors will have no choice but to buy long only equity and bond funds making the big fund managers and banks even bigger. this is the way it's going anyway, if you speak to the PI insurers.

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Hur Reebigballz

Feb 12, 2013 at 12:08

I cannot for the life of me see the argument for recommending an equity ETF over an index tracking fund. The costs are higher - why would you bother unless you are looking to track the Outer Mongolian Index or some equally obscure region.

I also can't understand why people are wetting their pants so much about these products being banned to ordinary investors. They can still be recommended to the only people who will ever need or want them - high net worth's and/or sophisticated investors.

Why would you recommend a VCT or EIS to someone with a small tax liability, investable assets of less than £250,000 or little or no experience of investing?

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Stanley Kirk

Feb 12, 2013 at 13:17

Interesting concept, one government dept thinks up tax incentives to encourage investment, another one bans them! Joined up government anyone?

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Julian Stevens

Feb 12, 2013 at 13:32

Would you buy a used car from a man with a face like David Geale?

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Hickky

Feb 12, 2013 at 14:01

@ Julian

Only if I wanted a Range Rover Freelander about 02/03 reg. then I would know it will be unreliable, just like the FSA investment policy.

Oh that it had the reliability of a Honda Jazz!

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Nigel Bracken

Feb 12, 2013 at 16:25

It is peculiar isn't. This morning on the radio 4 news the Pensions Minister and some bod from tPR were waxing about pensions liberation. The PM said don't do it - pensions are "locked in" until your 55.

Here we have a complex, severally limited access, heavily controlled and restricted financial product offering no guarantee of the basis of which it can be accessed in future, where 30 years of careful saving could become instantly overfunded and subject to tax penalties on the whim of a politician yet consumers can buy it pretty much anywhere and invest in potentially high risk assets like bank shares without any advice at all ( and in fact we are going to put you in one and see if you can work out how to leave it unless your self employed in which case we don't care as one PM or other must have said since AE) but qualified, regulated, insured (possibly) advisers might not be able to consider say, a VCT with a possibly signifcantly shorter lock-in at all!

Something should be done - perhaps the FSA/FCA/OFT could look into it for us ...

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Julian Stevens

Feb 12, 2013 at 16:40

I think that pensions for the common (BRT) man without the benefit of a sizeable employer contribution have become a completely naff proposition (toxic to many) and the Treasury's glove puppet Steve Webb is neither doing or saying anything to reverse public antipathy towards them.

I ditched my PP funding three years ago (probably three years later than I should have done) and now plough everything I can afford into unfettered collectives.

How in all honesty could I advise most ordinary folk to do anything different?

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Hugh Malcolm Morton

Feb 13, 2013 at 10:03

Maybe I've lost the plot, but what does ETFs, VCTs, REITS or BPR got to do with the UCIS that the FSA where looking at restricting the ordinary person investing in. Do they understand these investments and how they operate and more importantly with BPR, they could put those who have invested in these areas, with the governments approval and encouragement, into a position where they have just lost all the benefits at a stroke.

For all of you saying that they should only let us advise on UT and OEICs, you are obviously looking to stay independent but can't justify it by your restricted investment choice for your clients or you have not looked beyond the wrappers at the investments themselves or their possible benefits.

Yes there have been some very bad investments that advisers have foolishly recommended but there are still some very well run UCIS that have been trading happily for some years, where clients have enjoyed excellent regular returns. So for the FSA it is more about regulating the products not the purchaser, which is what they are doing.

Oh and by the way, so it wasn't a consultation, they had already decided but just wanted to make it looked like they were consulting!!!!

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Hickky

Feb 13, 2013 at 10:40

@ Hugh

I will advise on these less mainstream products if I feel it is worth considering for certain clients, but there are not many. Although I agree there are certain UCIS out there that are well run, trade happily and give excelent returns, however they can only be suitable for clients who are willing to take higher levels of risk as there is little protection if something goes wrong. In additio,n they are subject to a much lower level of scrutiny.

We cannot advise on individual equity, nor can we manage discressionary portfolios as IFAs, so I feel it would be sensible to only allow these products to be recommended through a Stockbroker , or, if that will not work, ban adv iser charging coming from these investments ,ensuring the client has to pay the advice firm directly. This will help to reduce the abuse that has, and still is, going on by some advisers without ethics or morals. I think these actions will improve the perception of the products, and reduce the likleyhood of abuse, and increase the public's perception of the advice community as a whole.

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Hugh Malcolm Morton

Feb 13, 2013 at 11:12

I agree entirely that if advising on products of any kind the client pays directly to the adviser and this would help to eliminate any 'abuse' by advisers. This would have stopped alot of the problems in the first place as investors would have seen exactly what they were paying for and if they felt it was worth the 'risk'.

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FRANKLY

Feb 13, 2013 at 12:37

Isn’t it reassuring that this faceless, unaccountable and unelected organisation can ride roughshod over EU dispensations, UK HMRC Tax Incentives and Govt legislation on a whim and based entirely on prejudice?

Anyone with half a brain knows that a UCIS is merely a 'wrapper' and of itself entirely benign. It is what goes in it, and forms part of the regulatory package around it (Operator, Promoter, etc) that the FSA should be looking at.

Ask a Connaught Income fund investor where the FSA have had evidence of criminal activities by regulated entities for at least a couple of years (proof hand delivered to them) and done nothing to peruse the criminals, but indulging seeming in mis-briefing MP's and anybody else who will listen about mis-selling. No agenda there. A cover up may be fine to hide how truly unfit for purpose this organisation really is, but Malfeasance?

This is all a smokescreen to protect the FSA. It has absolutely nothing to do with investor protection and we are all being conned.

“Four legs good, two legs bad.” Welcome to ‘the’ Animal Farm. Mr Orwell would be 'proud'.

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Ian Lees

Feb 13, 2013 at 13:55

Hickky

Feb 13, 2013 at 14:08

But would Eric Blair? as ann old etonian socialist writer, I think he would be in two minds, trying to balance the public good with the loss of freedoms. Some say he was a communist.

Frankly you should think your analagies through!

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