FSA proposal poses retail risk to Reits Property companies and investment managers are preparing to fight a Financial Services Authority proposal that could prevent the marketing of real estate investment trusts to retail customers. After a series of high-profile collapses that cost investors millions of pounds in losses, the City watchdog announced a crackdown last summer that will stop UK financial advisers from marketing exotic investments to ordinary investors. Most consumer groups have praised the move, saying it would protect unwary customers from putting their life savings into risky schemes they do not understand. But lawyers are warning that the FSA's definition of "unregulated collective investment schemes" could include Reits, tax favoured funds that have historically been marketed to small investors. Retail investors account for roughly 8 per cent of all shareholders in UK-listed Reits, according to an analysis by Jefferies, the investment bank. "It is absurd to liken [Reits] to unauthorised collective investment schemes," said Peter Cosmetatos, director of finance at the British Property Federation, the industry's trade body. It is quite incredible that the FSA should seriously propose barring retail investors from them. The FSA acknowledges that some Reits would be caught by the proposed rules, which would prohibit active marketing of UCIS to all but "sophisticated" investors. Retail customers, however, would still be able to buy them on their own initiative. The watchdog said its consultation was still continuing and that the structure of the rules were "not a foregone conclusion." The FSA is set to announce the final rules by the end of March. "It would be a big disappointment if the FSA included Reits in the ban because it would be casting the definition of non-mainstream pooled investments very wide," said Ben Blackett-Ord, chief executive of Bovill, the specialist financial services regulatory consultancy. Reits have an important place in many investment strategies. The government first introduced Reits in Britain in 2007, a move which prompted restructurings by most of the large companies in the industry such as British Land, Land Securities and Hammerson. By becoming Reits, companies were given tax advantages in return for distributing at least 90 per cent of their property-generated income to shareholders. Phil Nicklin, real estate tax partner at Deloitte and an architect of the UK's Reit system, said the FSA risked reducing transparency for retail investors: "If there is a good degree of information on what the company is going to do, then people should have to chance to invest or not invest. It should be up to them.