Share the wealth
With the FSA turning its focus on the wealth management sector, client portfolios and attitude to risk have come under renewed scrutiny
The wealth management sector has received the attention of the City regulator, and much of its recent guidance is not just limited to wealth manager businesses but has scattered across other areas of financial services.
Firms outside the wealth management sector, including IFA firms, should take note: there have been a number of cases publicised in recent weeks where IFA principals have been fined and banned for failing to ensure they collected and analysed adequate management information. This resulted in senior management failing to identify and review exposure to compliance risks and for failings in the file review processes.
The FSA’s last sentence in the Dear CEO letter sent to wealth managers informs them that: “Wealth management businesses can expect to see continuing and increased supervisory focus in the year ahead” which means that the regulator is preparing to review the sector and that the content of this letter will form the basis of future assessment.
In June this year the regulator made it clear what it expected to see from wealth management businesses. The areas the regulator wanted organisations to consider in this letter were:
* Does the firm have an assessment of a meaningful amount of sample file checks to evaluate?
* How accurate and what information is held on client files?
* What depth and quality of client information is recorded?
* How suitable is the client portfolio based on the documented client information?
When considering file checks it is essential to evaluate what standards are to be adopted. Is the organisation conducting a document check or quality of advice check? Then how will the checks carried out be verified and whether any external verification will be undertaken?
The design of the organisational systems will dictate the depth of the information recorded. However, the individual adviser will dictate the quality of information recorded, so how is consistency and efficiency achieved?
There have been a number of cases where IFA principals have been fined and banned for failing to ensure they collected and analysed adequate management information
In addition to this work, the regulator is carrying out a project to assess advice given to clients who have been recommended to invest using a centralised investment proposition. The purpose of this exercise is for the regulator to assess organisational interaction with model investment portfolios, discretionary investment management and distributor influenced funds.
There is a significant amount of attention being focused on the use of these investment solutions being used by IFAs. If your organisation is using any of these investment solutions you need to maintain sufficient records of due diligence and consider any implications for consumers.