Five wealth managers are in the FCA’s firing line after a wide-ranging report from the regulator revealed that investors were being offered unsuitable investment portfolios.
The City watchdog released a thematic review into the £600bn wealth management industry on 9 December.
The 24-page report, TR15/12: Wealth Management Firms and Private Banks: Suitability of Investment Portfolios, examined retail investment portfolios managed by wealth management and private banking firms.
As part of the review, the FCA said it was considering using its powers to investigate five firms, which might be “required to undertake significant remediation programmes to raise standards.
“Some of these exercises may involve us using our regulatory powers, such as the appointment of a third party (skilled person) and we are considering the use of our enforcement investigation powers,” the regulator said.
These five firms were part of a sample of companies used in the thematic review.
Of the total sample, four firms were required to take little or no action because they appeared to meet the expected standards, and six firms would need to devise a plan to remedy shortfalls.
The FCA said many wealth managers still have to make “substantial improvements” in gathering, recording and regularly updating customer information to support the investment portfolios they manage for customers.
It argued that firms need to do more to ensure the composition of the portfolios they manage truly reflect the investment needs and risk appetite of their customers.
The review pointed out that a number of firms have taken steps to both improve the suitability of their investment portfolios to customers.
Despite this, the FCA said: “There is clearly a need for further improvement by many firms, as there are still too many cases where suitability cannot be demonstrated or there is a high risk of unsuitability.”
Megan Butler, FCA director of supervision, investment, wholesale and specialists, said: “We are concerned that some firms do not appear to have heeded the messages we have put out in recent years, and taken steps to identify and correct problems we’ve previously identified.”
| Background |
This review followed the FCAs earlier thematic reviews of suitability in a sample of wealth management firms, carried out in 2010. In June 2011 this led to the FSA’s Dear CEO letter. The FCA carried out further work in 2012, outlining areas of failure in the industry, undertaking substantial back book reviews. Source: FCA |
Adviser view
Gary Teper, director at London-based Charles Stanley, said: “It is understandable that the FCA continues to focus on this issue as their reviews consistently seem to find firms falling short of their expectations. It must be in the interest of all stakeholders, including clients, for there to be a level playing field across the wealth management industry, so this ongoing scrutiny will inevitably continue as the City regulator widens its review.”
