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Regulator clarifies stance on advisers' passive propositions

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Regulator clarifies stance on advisers' passive propositions

The Financial Services Authority (FSA) has clarified its stance on passive-only, or mainly passive, propositions for advisers who wish to remain independent.

The regulator stated that advisers must start with a whole of market objective, and only adopt a passive proposition if suitable for the client.

It added that firms must not assume that passive investments are suitable for all clients, and must make sure passive investments are suitable for individual clients.

Likewise, if a firm’s panel is mainly passive investments, the adviser should be able to evidence that regular reviews have been taken and that other products or services would not be more suitable.

‘The firm would need to be able to advise on investments other than passive investments if that would be in the best interests of a particular client,' it said. 'To do this, its advisers would need to maintain an awareness of what is and is not included in the panel, so they can identify clients for whom, if necessary, an off-panel solution would be suitable.’

The FSA also said that passive investments do not constitute a 'relevant market', of which examples are ethical or Islamic investments. It referred to COBS 6.2.A.11G which states that a relevant market should 'comprise all retail investment products which are capable of meeting the investment needs and objectives of a retail client.'

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