Following all of the controversy regarding split capital investment trusts, the industry regulator, the Financial Services Authority are proposing changes to the regulations. The FSA's proposed changes have been put together in a discussion document.
These include added safeguards such as shareholders needing to re-appoint investment managers annually and checks to ensure fund managers are truly independent from the Investment Trust's board of directors. The consultation also includes proposed rules limiting the investment into various sectors and that shareholders should be asked to approve major changes to investment policy. There is also a proposal to limit the amount of 'severance pay' a departing fund manager can take.
All of this is good news for investors . The FSA is doing their job in assisting the protection of consumers and their investments. Some think this is too little, too late but any change for the better has to be welcomed.
In addition to proposed new rules, the FSA has also added more staff to their financial promotion department. This department looks at advertising done by insurance companies, fund managers and advisers to make sure the details are correct. Some of the recent problems with Investment Trusts could possibly have been avoided if the full scale of risk was known by investors. However, some documentation issued to potential customers could have been misleading and not shown the risks involved.
As well as looking at the sale of investment trusts, this FSA department looks at other investments such has high income bonds and investments with returns linked to an index. These types of investments do look attractive on the outside but some carry such a degree of risk that could wipe out the whole of the customer's capital.
Again, a welcome intervention from the FSA if it helps make marketing literature clear with all risks explained.