Alan Dick: FSA probe no threat to small wealth managers

Smaller investment-focused financial planning firms that describe themselves as wealth managers have nothing to fear from a fresh regulatory review of the sector, which will almost exclusively target private banks and large offices, according to Forty Two Wealth Management’s Alan Dick.

Alan Dick, Forty Two partner and newly elected vice-president of the Institute of Financial Planning, said the Financial Services Authority’s ‘Dear CEO’ letter last year - the precursor to this latest review - had focused predominantly on larger firms and that small financial planning firms will therefore remain largely untouched.

Mr Dick added that the regulator has no “specific definition” of wealth management, stating that it is “trying to regulate advice with a product mentality”.

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Yesterday (29 August), the FSA said it will launch a new enquiry into wealth management services being offered across the intermediary market, following previous warnings over potential consumer detriment.

In June 2011 the regulator published a Dear CEO letter that had been sent to executives of firms that offer wealth management services to retail clients, highlighting a piece of thematic work that had uncovered “widespread failings”.

The latest review will assess whether warnings from this earlier warning have been “heeded” and will make “judgements on the suitability of client outcomes”. The regulator said it will also undertake a direct assessment of firms’ systems and controls.

Mr Dick said: “When they say ‘wealth management’ they don’t have a specific definition, that’s the problem. But when you read the letter they seem to be talking about private banks and private offices.

“For most people doing financial planning work it isn’t going to change the business model or anything like that.

“The problem for the FSA, and I have sympathy for them, is that their remit is to regulate products but the market they are supposed to regulate is for the large part advice. They are trying to regulate advice with a product mentality.

“They are trying the best they can and appreciate that there are flaws in the process.”

Mr Dick did warn, though, that the regulator’s efforts to control the banks and other larger financial institutions could have a disproportionate effect on smaller firms expected to follow the same rules.

One example he provided was that of paying FSCS levies for mis-selling largely committed by big companies.

He said: “The amount of damage a proper financial planner can do compared to a bank is minimal, so it is more geared to how can you regulate banks and insurance companies.

“It’s much easier for them to regulate six entities than 10-20,000 one-man bands or regional practices.”