The UK wealth management industry
is bracing itself for an unprecedented bout of regulatory scrutiny
over its poor treatment of clients.
In one case, a Top Five global
wealth manager, with an extensive British presence, may be fined
tens of millions of pounds over mis-selling and management failings
in ensuring know-your –customer (KYC) and client suitability
standards were maintained, according to a source who did not want
to be named.
Go deeper with GlobalData
The extent of the industry-wide
problem has just been underlined by the Financial Services
Authority (FSA) in a damning report on standards in the wealth
industry.
It ordered 260 firms to review
advice given to clients or face disciplinary procedures.
Managers put clients into
high-risk investments
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By GlobalDataWealth managers are accused by the
FSA of putting their clients into inappropriate or high-risk
investments, according to a ‘Dear CEO’ letter written by the City
watchdog to heads of the firms.
The harsh warnings follow a review
of 16 wealth managers by the UK watchdog.
Fourteen out of 16 firms targeted
by the FSA– which the regulator refused to identify – posed a “high
or medium-high risk of detriment to their customers”, with 79% of
files having a high risk of unsuitability.
Two-thirds of reviewed files 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.
Problems
endemic
Those being monitored ranged from
small independent wealth advisers to the UK arms of global banks,
suggesting that problems are endemic in the industry.
Margaret Cole, managing director of
the FSA’s conduct business unit, warned firms to collect more
information on customer needs and to make sure their advice is
compatible with that data.
Key areas of concern, according to
the FSA letter, were the inability of firms to demonstrate that
client portfolios and/or portfolio holdings were suitable.
These included an absence of basic KYC information, inadequate
risk-profiling and the failure of some firms to implement Markets
in Financial Instruments Directive client classification
requirements.
