FSA aims to ‘bust’ passive independence ‘myth’

Rory Percival 450 Index

The FSA says it will “bust the myth” that advisers who only recommend passives to their clients cannot maintain independence in its next RDR newsletter.

In an interview with Fundweb’s sister publication Money Marketing, FSA technical specialist Rory Percival (pictured) says it is the process advisers go through to decide what is suitable for their client which determines independence, not the type of funds they recommend.

Percival says: “It is very possible advisers can only recommend passives to their clients and remain independent.

“If your start by reviewing the whole of the relevant market across actively managed, passive, OEICS, Etfs, investment trusts etc and then end up with a shortlist then you are independent.

“This review could end with recommendation of just passives which is fine. However, if you start with just a list of passive options then you are not independent.”

He says the FSA will provide clarity around this in its next RDR newsletter, due to be published later this month.

Pardigm Norton chief executive Barry Horner says: “Firms are obligated to do appropriate research on a client by client basis and as long as this is done then there is no implications to independence irrespective of whether the final choice is of passive funds.”

Forty Two Wealth Management partner Alan Dick says: “I think Rory Percival seems to be the common sense department of the FSA and I agree absolutely with what he says. Certain parts of the industry have tried to confuse this issue when it seems quite simple what the situation is. I look forward to the FSA reaffirming this in the newsletter.”