The FCA turns the spotlight on fund ratings

FT Adviser reports that the FCA has highlighted fund ratings and model portfolios a particular area of concern in its newly launched study of the platform market : https://www.ftadviser.com/regulation/2017/07/17/mps-and-fund-ratings-brought-into-fca-platform-study/

The key points are:

  • “the FCA said it would conduct further analysis on fund ratings”
  • “as well as covering the £600bn platform industry, the FCA said advisers, wealth managers and other distributors would also be studied”
  • “We will assess whether platforms’ risk profiling tools match investors to a portfolio suited to their risk level”
  • “The FCA also said it wanted to understand the impact fund ratings had on a platform’s ability to construct tools for advisers”
  • “The study will also include elements of discretionary wealth manager offerings – which the regulator said could be considered an equivalent to platforms in some cases”

This echoes

  • CP12/09:
    • “the duty to determine suitability cannot be delegated”
    • “it is up to the IFA to determine the risks in the product
  • TR15/12:
    • “firms should ensure that they understand the nature and risks of products or assets selected for customers”
  • TR16/01:
    • “When firms have CIPs, they must ensure the advice is suitable for the individual client”

The case for firms to use AssetQ (to evidence they understand the risks in the products they recommend) continues to gain strength.

How to select a fund manager

We recommend Citywire’s Secret CIO series.

The most recent of these is: https://citywire.co.uk/wealth-manager/news/the-secret-cio-when-i-would-avoid-a-fund-manager/a1038826?re=48333&ea=496874&utm_source=BulkEmail_WM_Daily_PM&utm_medium=BulkEmail_WM_Daily_PM&utm_campaign=BulkEmail_WM_Daily_PM

The article expands on key questions in the fund manager selection process – a process AssetQ supports by taking on the heavy lifting, enabling the fund manager interview to maximise the effort from both interviewer and fund manager. For example, AssetQ

  • distinguishes between the members of the team that perform analysis and those that actually make the investment decisions so that analysis can go beyond ‘clients like to see big teams’
  • assesses whether adherence to the investment process is monitored (or whether the investment process is a marketing document that is “not a true reflection of how decisions get made”, representing “some Platonic ideal of how it might work given all the resources the firm has”)

The analysts skills in a fund manager interview can then focus on other key questions e.g

  1. Do I understand where ‘the magic happens’ and a decision gets made?
  2. Can I share the passion and commitment to positions when they are explained to me, i.e. do I feel they make enough sense that if they go wrong, I can still see that the reasoning at the time was sensible?

Another article in the Secret CIO series is: https://citywire.co.uk/wealth-manager/news/secret-cio-the-good-bad-and-ugly-of-fund-management/a1036796?section=wealth-manager