The firms running DIFs will no longer be able to receive a share of the annual management charge (AMC) or any benefit other than an adviser charge, says the new guidelines.
The FSA further added that adviser charges for recommending DIFs should not vary inappropriately from competing retail investment products.
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They also suggest that firms which have DIFs could be presented with a potential conflict of interest.
FSA said that a firm’s desire to make an administrative cost saving or to increase the firm’s acquisition value should not lead to customers being recommended a distributor-influenced fund when this not be in their interests.
According to the guidance, firms that recommend a product run by a connected firm, such as a DIF, should give evidence that the advice was unbiased, suitable and in accordance with conflict of interest requirements. And these requirements should include the disclosure of any connection with the fund and an analysis of potential incentives to recommend the DIF such as equity stakes, free holidays and bonus entitlements.
The FSA also cautioned that firms will have to rigorously assess the suitability of DIFs for their clients and record the reasons for any decision to use them.
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By GlobalDataMoreover, the published guidance says, one of the questions wealth managers should consider is whether the asset allocation of the DIF could unbalance the overall client portfolio weighting.
