UK’s Financial Services Authority Publishes Proposals For Fund Disclosures To Retail Clients

The Financial Services Authority (FSA) has today published a consultation paper – CP05/13 Bundled Brokerage and Soft Commissions Arrangements for Retail Investment Funds – which addresses the issue of how to ensure that investors in retail funds benefit from the enhanced disclosure regime being introduced for firms for bundled brokerage and soft commissions from 1 January 2006.

The paper examines how the needs and expectations of investors in retail funds can best be met and proposes measures that will support the FSA's aim of ensuring fairness and accountability for those investors.

Rules for Bundled Brokerage and Soft Commissions

The overall objective of the FSA's new regime is that investment managers should achieve value for money for any expenditure that is charged through to their customer’s portfolios. The aim is to achieve this through increased transparency and accountability by disclosing this expenditure to clients, thereby subjecting the manager to competitive pressure to ensure clients receive best value.

The FSA recognises that the majority of retail investors will have little interest in receiving this detailed information as it would be largely meaningless to them or they have limited means of influencing the investment manager's behaviour if they are unhappy with it.

The FSA, in addressing this discrepancy, is proposing that an individual or body should act as a representative of retail investors who will consider the new disclosures on investors' behalf and interact with the manager where necessary.

Any representative will need to have an appropriate degree of expertise, authority and independence and so the FSA has made proposals for who would be suitable to carry out this role for each type of fund:

for collective investment schemes (CIS), the depositary or trustee;
for with-profits funds, the committee or person appointed to review compliance with the Principles and Practices of Financial Management;
for investment trusts, the directors of the company, in particular those who are independent of the investment manager;
for unit-linked funds, either the with-profits committee if the company has one, or the appointed actuary, or the independent directors of the company.

This paper will be of particular interest to managers and depositaries of authorised collective investment schemes; to life assurance companies managing with-profits and unit-linked life funds; to firms providing investment management services to any of those types of fund; and to investors and policyholders in those funds.

The closing date for submissions to the consultation paper is 6 January 2006.