Passive specialists should be restricted, FSA confirms

Advisers specialising in passive investments should be classed as restricted, the Financial Services Authority (FSA) confirmed today.

Although the retail distribution review (RDR) came in to force six weeks ago, the FSA clarified the rule in a newsletter penned by head of investment intermediaries department Linda Woodall today.

In the letter she said firms should consider active as well as passive products in order to be classed as independent.  

She said the FSA had received many queries asking if advisers only recommending passive investments could be defined as independent.

Since the FSA’s guidance stated that recommendations for clients should cover the whole of the ‘relevant market’, passive providers had queried whether tracker products constituted a whole market.

‘A firm's review process should always start with the consideration of the whole of the relevant market in an unbiased and unrestricted way (actively managed, passive, Oeics, investment trusts),’ it said.

‘On this basis, we consider that “passive investments” are not a “relevant market”’.

Woodall said that passive specialists should not ‘assume that passive investments are suitable for all of its clients’ but that investment panels could mostly recommend passives provided evidence of justification could be shown.