Absolute return funds remain on FSA risk radar

The Financial Services Authority (FSA) has highlighted absolute return funds as an area of “potential concern” in its latest Retail Risk Conduct Outlook.

The FSA warns that absolute return funds may pose a “potential retail risk” for a number of reasons.

It warns consumers and financial advisers may not understand them and that consumers “could suffer significant unexpected financial loss if they sold funds that fail to perform.”

The regulator has highlighted concerns in its previous outlook, but believes risks over “complex investment strategies and promoting them to retail investors” remains.

It says: “Work is currently being undertaken to assess the extent of the risk posed by the funds. (article continues below)

“Providers will need to ensure they meet their regulatory obligations in relation to these products, for example in relation to the targeting of them and the explanation of their risks.

“Advisers must also ensure that they meet their obligations in relation to their understanding of the product and the risks involved, and the extent to which recommended products meet the needs of their consumers.”