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Regulator’s ‘softly, softly approach’ to best buy lists needs meaningful action

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Written by: Paloma Kubiak
06/02/2020
The City watchdog has reminded platforms about the need to be impartial when it comes to listing best buys and in documenting dropped funds, just months after the Woodford saga emerged.

In a letter to CEOs, the Financial Conduct Authority (FCA) highlighted ‘conflict of interest’ as one if its key harms which can result in customers receiving poor value for money and, or products and services unsuitable for their needs.

Focusing on firms operating best buy lists, the watchdog said they need to be constructed impartially and conflicts need to be managed such as the preference for funds offering discounts over formal and objective criteria.

The note read: “Processes for clear selection, monitoring and deselection of funds on lists should be documented, understood and followed.”

The letter comes after it was revealed last year that investors were selling off their Woodford Equity Income fund holdings on various platforms but Hargreaves Lansdown added it to its Wealth 50 best buy list.

And just this week it emerged that Hargreaves cut its Woodford stake weeks before it was suspended in June 2019. The fund is in the process of being wound-up with investors receiving around half of their money back as part of their first payment.

James McManus, chief investment officer at Nutmeg, said: “The FCA first raised concerns between funds on so-called ‘best buy lists’ and platform providers in its 2017 study. Three years later and we’re still in the same place.

“While today’s Dear CEO letter is a step in the right direction, it’s time the regulator took meaningful action on best buy lists to ensure the appropriateness of the fund recommendations for a mass market retail audience and the frequency and transparency of the due diligence process for funds on best buy lists is clear.

“Failure to do so will result in buy lists not acting in the best interest of consumers and potentially doing irreparable damage to the broader investment industry.”

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