Perhaps it is proximity bias, but the recent suspension of the LF Woodford Equity Income Fund has generated far wider public debate regarding the current state of the fund management, investment platform and advice markets than any single regulatory intervention in recent memory.
Financial Conduct Authority (FCA) consultations and discussion papers might be manna from heaven for techies like me, and you’d expect them to have a far greater long-term impact on financial services than the suspension of a single fund. However I can’t recall any of those interventions dominating the financial pages of the national press or generating political attention for an unbroken period of several weeks.
This attention is unsurprising because of the immediacy of the impact of the suspension on the value and availability of a significant level of funds. Tens of thousands of savers are facing what for them is likely to be the unprecedented circumstance of not being able to get at their own funds as well as the potential for sizeable losses when they eventually can sell.
Questions are already being asked about the appropriateness of the use of best-buy lists in the non-advised investment market and whether this might slip over into the provision of regulated advice.
The FCA’s own regulatory guidance, specifically PERG 8 Annex 1, makes it clear that “publishing a list of ‘best products’ or ‘funds of the month’ would not, in itself, normally be regarded as a personal recommendation”. So we have clarity that the regulator doesn’t (normally) consider the use of best-buy lists to involve advice, but the Woodford suspension has led to this view being publicly challenged by a number of savers, politicians, some advisers and within the press.
The extent and prominence of this challenge means the question will naturally receive attention within the FCA. It might be stretching things to suggest that PERG itself will be amended. However, the words “in itself, normally” were already doing a bit of heavy lifting in PERG, with that load being added to by the Woodford suspension. So it wouldn’t surprise me to see the FCA clarifying what those words mean when it comes to the usage of best-buy lists.
I won’t speculate on what any clarification might look like but I am interested in what it might mean for the FCA’s planned introduction of default investment pathways for customers entering drawdown.
If the use of best-buy lists containing dozens of funds is perceived by many to involve the provision of advice, how does a default investment pathway escape similar scrutiny? Pension providers won’t be publishing a list of 50 or more ‘best-buy’ funds with drawdown customers able to choose whether or not to even look at the list. Instead providers will be required to proactively offer each non-advised customer entering drawdown a single investment fund, which will have been chosen and named to reflect the customer’s plans for their drawdown pot – but without any consideration being given to the risk appetite of the individual.
There’s no certainty that the huge attention being focussed on the usage of best-buy lists will lead to regulatory change, though some form of intervention already feels inevitable. Depending on the extent of that intervention, it will be interesting to see how it reads across to the investment pathway requirements.
Gareth James is head of technical at AJ Bell