The Financial Conduct Authority is preparing to visit a number of wealth managers later this year to check they are making progress after the regulator found major failings in suitability standards.
Megan Butler, director of supervision at the FCA, has said some wealth management firms “need to up their game”, suggesting they are taking “unnecessary risks” with customers’ capital.
Ms Butler’s comments follow a long-running thematic review by the regulator, which found many parts of the wealth management industry are still falling short of expectations over the suitability of their investment portfolios.
Over the past six years three separate phases of enquiries have been undertaken, culminating in a thematic report on suitability published in December.
The FCA director said the regulator will visit a number of firms at the end of the year to see what action they have taken in response to the findings.
Ms Butler said: “We have set out clearly what our expectations are, not least through the inclusion of good and poor practice examples in our last review.
“We expect all firms – not just those involved in the project – to take on board our findings, consider whether they can consistently demonstrate suitability across their client files and take any steps necessary to address any shortcomings they identify.”
Improving standards around the way wealth managers assess suitability has been a priority for the FCA, she said, adding firms must not think the absence of customer complaints means no problem exists.
“Some firms tell us that their customers are satisfied with their portfolios and that they have low levels of complaints.
“Unfortunately, customers often lack the knowledge and investment experience to judge suitability, which is why they seek expert help in the first place.
“This is particularly true for discretionary customers, who consciously delegate the day-to-day management of their investments to their wealth manager and rely on them to act in their best interests.”
Alan Steel, managing director of Scotland-based investment adviser Alan Steel Asset Management, questioned what the FCA defines as a wealth manager and said this is rich coming from the FCA.
“These theorists need to up their game first. They remind me of whoever runs Edinburgh airport; each time you look the rules are changed.”
He queried how the FCA concluded wealth managers aren’t assessing suitability correctly, despite the regulator saying clients are happy.
“If clients don’t understand what wealth managers are doing, isn’t that thanks to the screeds of double dutch we have to send out to clients every time they change their socks?”
Dan Farrow, director of Essex-based SBN Wealth Management, said: “The process of making the regulator happy works two ways, in that we as an industry need to understand expectations, but there is a basic level of quality which I’m afraid is quite hit and miss across the board.
“As an acquiring firm, I still see some examples of shocking advice when carrying out due diligence.
“Wealth managers and IFAs alike should be operating to the same standards and so the FCA should stop separating them and employ a blanket approach.”
katherine.denham@ft.com
