Wealth managers must ‘get house in order’ as FSA hones in
Wealth management firms must ensure they not only carry out due diligence but document every step of the way.
Firms that market themselves as ‘wealth managers’ must review their processes to ensure that they have sufficient controls to mitigate the potential for mis-selling and document every part of their advice process, according to one compliance expert.
According to The Consulting Consortium the Financial Services Authority’s fresh probe into wealth management services will affect all such firms regardless of size and spark a debate examining the very nature of wealth management itself, meaning firms must “get their house in order” now.
According to Ian Stott, client services director at The Consulting Consortium, the regulator is becoming increasingly active concerning centralised investment management.
He said: “I find it interesting that the regulator is becoming more vocal and more active around CIMs and replacement business. There is no question that the regulator is turning up the heat on these businesses to ensure that they are fit for business.
“It’s quite clear that this is aimed along the breadth of the wealth management industry.”
Mr Stott’s comments come in response to remarks by Alan Dick, partner at Forty Two Wealth Management and newly-appointed vice president of the Institute of Financial Planning, who said last week that the FSA’s review will pass over smaller companies and instead focus on larger institutions.
Mr Dick has since revised his earlier opinion that the FSA will mostly target large firms with its review.
Mr Dick said: “It is to do with suitability and particularly with the assessment of the capacity for loss.
“Every firm should be aware of and should be implementing and in my experience it’s an area that smaller firms are generally better at so it should be less of an issue but should still be a major factor for anyone involved in financial planning.”
Mr Stott said: “What does wealth management look like? Does a firm have to have both advised and discretionary firms to be a wealth manager? Do you have to manage the underlying assets yourself?
“The waters are still very muddy. It will become clear in September.”
Mr Stott called for heads of wealth management firms to not only ensure they have the correct checks and controls in place, but that they can provide documentary evidence proving so.
He said: “If it isn’t done already then create a project team to look at your new controls. And if you are not convinced by your internal review get someone in to do it.
“Replacement business potentially creates a higher risk of unsuitability so we would be expecting firms to place a higher priority on checking these.
“If the regulator finds there has been unsuitability in the advice process it will make them redress those customers and bring them back to where they were prior to advice.
“Get your house in order.”