The FSG – The SOA’s Even More Useless Companion

A previous post set out my views about how useless SOAs are.  This post is about the FSG, the SOA’s even more useless companion.

The FSG’s primary purpose is to disclose conflicts of interest that derive from an adviser’s ownership model and/or remuneration structure.  The client is meant to read the FSG and decide in the light of this disclosure whether they wish to use the adviser’s services. The first problem I have with FSGs is that disclosing gross conflicts of interest does not make them right.  Advisers should not be able to operate within an ownership model/remuneration structure that puts their interests directly in conflict with their clients’ interests.  Disclosing the existence of things that should not be happening in the first place does not solve the underlying problem. Moreover, when something goes wrong because of these conflicts, the adviser can point to the FSG and say they have been disclosed – that is, the FSG is used as a weapon against the client.

The second problem is that clients never read FSGs.  I have never met a client who has read a FSG and I have met very few clients who could understand a FSG even if they did read it.  FSGs are invariably drafted using language that is intended to obscure problems – they never say your adviser is hopelessly conflicted and if I was you I would go somewhere else for your advice. Instead they set out information about ownership structures and remuneration models that only the most sophisticated of readers would understand.

The FSG is emblematic of a fundamental problem in financial services regulation.  Ownership and remuneration structures that are unfair to clients should be banned.  The current approach of allowing improper practices on the basis that are OK if they have been disclosed to clients is unfair to clients and leads to poor client outcomes.

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