The Financial Services Authority (FSA) has
flagged concerns over wealth management businesses in the UK after
identifying poor practices, including increasing clients’ risk
levels and poor record keeping.

The regulator’s Retail Conduct Risk
Outlook analysed the wealth management activities of banks’
wealth management arms and independent wealth managers.

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Concerns such as poor risk-profiling,
unwarranted use of complex, illiquid, high-cost products and the
use of convenient statistical data in wealth practices were
highlighted.

 

Poor risk-profiling

Private banks were accused of encouraging
clients to increase their risk-thresholds, with the regulator
suggesting relationship managers may be downplaying risks of
products they were selling.

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The UK regulator also said banks
inappropriately targeted affluent and mass affluent customers,
either through up-selling into private banking, or by offering
unsuitable wealth management products via their retail banking
arms.

 

Post-crisis private banking
downfall

The FSA cited data from Compeer and Mintel,
reporting the value of investment assets held by private banks in
2009 at £131bn ($212bn), while the sector generated a total of
around £1.87bn in revenue that year.

The regulator also reported that a 24% decline
in fees and commissions, related to one-off sales of investment
products, such as Venture Capital Trusts or hedge fund structured
products, had also led to the private banking downturn.

 

Banks eye the affluent and mass
affluent

The regulator noted that mass affluent and
affluent groups in the UK population, with investible assets valued
at £50,000 or more, could be targeted by high street banks offering
lower-tier private banking and asset management services.

The FSA added that it is now carrying out
further investigations of other firms concerning some of the issues
identified.