He said the publication by the Financial Conduct Authority (FCA) of its asset management supervision strategy letter, which was released on January 20, and the regulator’s portfolio strategy letter for financial advisers, which was sent to advisers on January 21, were a sign the regulator was “showing its teeth” about the extent of its regulatory ambition.
But he said the content left little for advisers to agonise over.
The letter to asset managers showed the regulator was concerned that asset management firms were not providing good value for clients.
The FCA criticised funds where the fees paid by the client exceed the returns earned, and also where the relevant index against which the fund should be measured is not clear.
The letter also criticised authorised corporate directors for not taking their responsibilities to end clients seriously enough.
The letter to advisers said advisers must ”ensure the advice you provide is suitable, costs and charges are disclosed clearly, and you act in the best interests of your clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed.”
Mr Davy said: “I have often spoken about the regulatory burden shouldered by the adviser community and, whilst the recent ‘Dear CEO’ letter does nothing to lessen their responsibilities, it contains no unpleasant surprises.
"In fact, I am sure that most advisers will find their priorities are already aligned with those of the regulator, and that they have been complying with the points raised for many years.
"Suitability, of course, is a major focus of the regulator, and rightly so. Fortunately, the technology solutions and streamlining of processes now available means that fulfilling the requirements of suitability is now a much less arduous task.
"It is rare to find an adviser who is not using technology to help generate appropriate suitability reports based on their meaningful conversations with their clients.”
However, he said while advisers were essentially already meeting the regulatory requirements outlined by the FCA, he believes asset managers will find it a challenge to meet the requirements.
Mr Davy said: “I do however worry that fully meeting the regulator’s objectives may pose more of a challenge for asset managers than advisers.
"Whilst many of the issues touched upon in last week’s letter were based upon Mifid II rules, I am not entirely sure that asset managers currently have the necessary level of preparedness to operate fully to the expectations of Mifid II.
"Given the events of last year, worries about liquidity management are at the forefront of many asset managers’ – and advisers’ and clients’ – minds, and this is likely to be a major area of focus for all.
"I feel that product governance, appropriateness testing and TMAs have the potential to cause asset managers a real headache.
"Working with individuals from asset managers, I know their desire to create good outcomes for clients is absolutely key to the work that they do. My concern is that a lack of data and real consumer insight might make complying with the Dear CEO letter a difficult and daunting task.
“Asset managers will need to dust off the Prod rulebook and decide whether they are doing enough to meet the needs of an increasingly forceful regulator.”
david.thorpe@ft.com
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