The Financial Services Authority has put the
UK wealth management industry on notice over what it calls
‘significant and widespread failings’ over sales suitability.
In an open letter to wealth management chief
executives, it ordered 260 firms to review advice given to clients
or face disciplinary procedures.
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The warning comes after a review of 16 wealth
management firms which provide advisory and/or discretionary
investment management services, predominantly to retail
clients.
The review found:
- 14 out of 16 firms were judged to pose a high
or medium-high risk of detriment to their customers, based on the
number of client files which had a high risk of unsuitability or
where the suitability could not be determined. - Overall, 79% of files reviewed had a high
risk of unsuitability or the suitability could not be
determined. - 67% of the files reviewed were not consistent
with one or more of the following: the firm’s house models; the
client’s documented attitude to risk; and the client’s investment
objectives.
Margaret Cole, managing director of the FSA’s
conduct business unit, said suitability – and the
ability to demonstrate it – was a key area of
risk.
In the letter, Cole said that wealth
management businesses could expect to see continuing and increasing
supervisory focus on these issues in the year ahead.
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