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Mixed reaction for LTAF retail extension


The FCA has opened up the Long-Term Asset Fund (LTAF) structure to retail investors, a move that met with mixed reactions, as platforms considered a range of challenges.

Following a consultation launched in August last year, the FCA has outlined final rules allowing mass market retail investors, self-select DC pension schemes and self-invested personal pensions to invest in LTAFs.

The FCA’s final rules published on Thursday 30 June are intended to enable mass market retail investors to access the LTAF ‘appropriately’ while ensuring they understand the risks, as the LTAF is inherently a higher-risk product than is typically distributed to retail investors.

Firms marketing LTAFs to retail investors will need to provide risk warnings and summaries. Those selling units in LTAFs must conduct an appropriateness assessment. Unadvised retail investors will need to limit their exposure to 10% of their investable assets.

Investment Association chief executive Chris Cummings said the LTAF expansion is ‘an important step forward’ in broadening access to less liquid assets, which he said can provide a ‘valuable source’ of long-term returns for investors.

Richard Stone, chief executive of the Association of Investment Companies, was more critical, arguing that extending distribution of LTAFs ‘could prove to be a mistake’. He noted that ‘Woodford Equity Income Fund and problems in the open-ended property sector have shown how much harm liquidity problems can cause to retail investors. Selling LTAFs to retail investors is an accident waiting to happen.’

Stone added that the additional measures proposed by the FCA ‘do not go far enough’ to secure reliable redemption and prevent these problems emerging. ‘This will be an early test of the Consumer Duty,’ he said. ‘We hope firms exercise sufficient caution to prevent a future scandal arising. But, if it does, no-one can say the industry and regulator weren’t warned.’

In its policy statement, the FCA accepted that there were concerns that investment platforms might encounter problems in accommodating LTAF distribution and be reluctant to launch products with notice periods, as current market infrastructure is based on daily dealing.