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FSA warns wealth managers: 80% of portfolios are unsuitable
by Daniel Grote on Jun 14, 2011 at 12:00
The Financial Services Authority (FSA) has warned wealth managers the approach they takes to investment suitability will come under more scrutiny, after the regulator uncovered a number of failures in a review of 16 firms.
FSA director of conduct and policy Sheila Nicoll (pictured) said that from the review of 16 wealth management firms the regulator had concluded four out of five files were unsuitable for clients or 'suitability could not be determined'.
In addition, two out of three files were not consistent with the firm's in-house models or the client's documented attitude to risk.
'We found that firms were not able to demonstrate suitability for a number of reasons, including the absence of basic "know your client" information and a reliance on out-of-date information,' she said.
'Firm's were not adequately recognising the risks that clients were willing to take and the inconsistencies between porfolios and the client's attitude to risk, their investment objectives, investment horizon or the agreed mandate. This was compounded by firms not implementing Mifid client classifications,' Nicoll added, speaking at the Chartered Institute for Securities & Investment (CISI) annual conference.
From the review, the FSA often found no record of the client's financial situation or firms failing to obtain enough information on the client's experience and objectives. 'I am sure we all agree that these are basic things that we and clients expect firms to get right,' Nicoll said.
The FSA said the review had led to regulatory action with a number of firms. A follow-up review is planned for later this year, and a has been published.
'Our overall messages for wealth managers are pretty clear,' said Nicoll. 'They need to make sure that they are compliant with suitability and are maintaining good records. They need to make sure that they have the right controls and risk management systems. Make sure that you are compliant'.
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16 comments so far. Why not have your say?
l'ifa passeport en provenance de France
Jun 14, 2011 at 12:56
My thoughts as well, keep clear of the DFMs
report thisbrian hammond
Jun 14, 2011 at 13:02
Sheila Nichol has not mentioned whether these "wealth managers" are Chartered or not.
It seems strange to me that those firms recently fined by the FSA have all been Chartered.
report thisjohn dungworth
Jun 14, 2011 at 13:22
can someone please tell me the definition of "wealth manager"??
report thisPeter Hurley
Jun 14, 2011 at 13:28
John,
A wealth manager is some-one who looks after your maoney until it has all gone!
report thisYou must be joking
Jun 14, 2011 at 13:28
@ john dungworth
Definition 1:
Someone who loses your money whilst charging your for the privilege
Definition 2:
Actually, I'm stuck at definition 1!
report thisPat Riot
Jun 14, 2011 at 13:50
Peter Hurley beat me to it.
report thisjohn dungworth
Jun 14, 2011 at 13:51
ah thanks for that i just see the title all the time and it would help even more if an actual wealth manager could provide a definition ? towry law perhaps?
report thisJohn Borgars
Jun 14, 2011 at 14:37
Tabloid headline!
The FSA has found that some files haven't been regularly updated to show that nothing has changed and you include those in the number deemed "unsuitable".
Can we have some real numbers, please? Or did the FSA press officer not think that you ought to know?
report thisdavid mann
Jun 14, 2011 at 15:56
wealth managers - tend to make their clients a small fortune.
but only when they started with a very large one!
report thisNick Bamford
Jun 14, 2011 at 16:45
@brian hammond
I have just taken a look at the FSA Final Notices and cannot identify that any of the fined, censured or banned firms or individuals were Chartered Financial Planners? In fact if you look at the websites of two of the fined firms it is notable that the directors and advisers are Cert level only
Which ones are you referring to?
report thisl'ifa passeport en provenance de France
Jun 14, 2011 at 17:02
Nice one Nick !
But a chartered mate i know has just had to bust his pension with the boys in alicante,bit skint at moment
report thisAnitaki
Jun 14, 2011 at 20:40
A wealth manager is somebody who becomes quite wealthy by placing bets with other people's money
report thisJohn Borgars
Jun 14, 2011 at 21:29
@ Anitaki
That is a definition of a trader at a non-bulge bracket bank (for those at bulge-bracket banks, omit the "quite")
report thisGus
Jun 14, 2011 at 21:47
Great move by the FSA.
Should start getting rid of some of our irresponsible "fund-picker" IFA colleagues.
report thisMan in Black
Jun 15, 2011 at 07:47
@Nick Bamford
Hi Nick
You could try the Notices imposed on RSM Tenon or more recently, Specialist Solutions Plc?
Some of us would suggest RSM was a case of CII giving the title away too lightly e.g. because one of the Directors qualified as an accountant 30 years ago etc.
Specialist Solutions on the otherhand was arguably a case of the FSA's UCIS witch hunt - those guys having come along way in delivering improved client offerings since their days as Inter-Alliance Birmingham.
But yes, the FSA is fining Chartered firms.
And as a Chartered FPFS person myself trying to inflict proper fee-based planning on my colleagues, I have to say that I think there is a lot of naivety amongst Chartered/New-Model people that the FSA is somehow 'on our side' and only out to get 'old IFAs'. This is not the case.
report thisMan in Black
Jun 15, 2011 at 07:57
FSA's definition of 'wealth manager' is certainly confused and I am not sure whether my own firm(s) fall into this category or not: we're from IFA backgrounds but now hold the permissions (and offer) discretionary management to our clients.
We haven't received this 'Dear CEO' letter yet. Downloading it however, I am amused to see that FSA's stance on the use of model portfolios remains about as clear as mud.
Recent FSA work (e.g. on Platforms, on Investment Suitability etc) has emphasised the importance of IFAs using a model only as a starting point and ensuring that there is some degree of tailoring. On the otherhand, this 'Dear CEO' chastises Wealth Managers for departing from House Models.
Is this just confused, or do we think its one rule for IFAs and one rule stockbrokery types 'managing wealth'? I wonder which requirement my firm is subject to - anyone?
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