THE CITY watchdog has warned that investment platforms offering model portfolios may be misleading consumers about the risks involved.
An interim report on the investment platform market found that the amount of information provided by model portfolio providers “makes comparison difficult” and warned that the use of similar-sounding labels, such as ‘cautious’, ‘conservative’ or ‘balanced’, can expose investors to significantly different underlying assets and volatility in returns.
“Similar risk labels are applied to very different portfolios and customers may have the wrong idea about the likely risk/returns they face,” the Financial Conduct Authority (FCA) said.
Many P2P firms offer their own versions of model portfolios in the form of auto-invest features, where lenders’ funds are automatically allocated into investments rather than manually choosing which projects to finance.
An FCA spokesperson told Peer2Peer Finance News that the report applied to firms who fall under the regulator’s investment platform definition, but added that if a firm feels their business model is captured “then they should be taking note.”
The FCA said it will assess industry progress before deciding whether it should introduce additional remedies in its final report.
It is seeking feedback on its initial findings and proposed remedies before publishing its final conclusions about the market in early 2019.
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