The clients of a wealth management firm which entered administration last week were paying fees and charges as high as 20 per cent of their total investment, the regulator has found.
SVS Securities PLC entered special administration after the Financial Conduct Authority identified "serious concerns" about the way in which the business was operating.
The regulator found it was targeting IFAs to promote its model portfolios to clients after a defined benefit pension transfer or SIPP switch.
It said the proportion of illiquid and high-risk bonds in its model portfolios were unlikely to match these clients' needs.
In its DFM business it allegedly promoted high-risk bonds to retail investors, which the FCA said was not in their best interest.
"Urgent" supervisory work by the financial regulator followed a tip-off about the assets in which SVS was investing client money, often following pension transfers, with the watchdog consequently instructing the wealth manager to cease all regulated activities.
In the FCA’s first supervisory notice published on its website yesterday (August 9) the regulator said it was concerned some customers of the wealth manager had been charged a series of high fees and commissions, in some cases amounting to as much as 20 per cent of the total investment.
According to the City-watchdog the high fees were partially the result of conflicts of interest at the company, with the FCA’s supervision team finding emails, sent between 2016 and the present date, showing SVS worked closely with third parties to help "generate and sustain" demand for the investment products it offered.
In particular the third parties included professional advisers, bond issuers and product providers and the investment products SVS aimed to push included its DFM model portfolios.
The regulator said SVS did so "without apparent regard" for the investment needs of customers, resulting in high fees and charges which it warned had “negatively impacted” clients.
The regulator said: "For example, once account is taken of the cumulative effect of fees and charges incurred in the transfer/switch and reinvestment of a pension, a customer’s investment sum is reduced in some cases by nearly a quarter.
"The extent of the total fee burden on customers also raises concerns that some of fees may not have been properly disclosed in accordance with the disclosure rules in COBS 6, or the general information disclosure rule in COBS 2.2.1R."
Concerns were raised over "repeated and serious breaches" of the FCA’s conflict of interest rules, which the regulator said senior management at the company were closely involved with.
According to the FCA around 90 per cent of SVS’ DFM business customers were invested in its model portfolios as a result of having received pension switching or pension transfer advice.
The FCA said it was concerned SVS was conducting business in a way that “creates an ongoing risk” to consumers.
The watchdog added: "Further, the scale of the uncertainty over investments promoted and/or managed by SVS creates the potential for a large number of consumers to suffer material investment losses."