FCA Investment Suitability Review of the Wealth Management sector

Paul MeadowsFCA Investment Suitability Review of the Wealth Management sector by Paul Meadows

Earlier this month the Financial Conduct Authority released its latest review of the UK Wealth Management sector’s ability to invest Client monies in a ‘suitable’ manner.

http://www.fca.org.uk/your-fca/documents/thematic-reviews/tr15-12

This matters; to quote the opening sentence of the review – ‘The UK Wealth Management industry plays a vital role in delivering financial services to consumers. Firms in this industry provide a range of services, including financial planning, investment advice, investment management and stockbroking. The industry manages over 1.8 million portfolios for customers in the UK and has over £600 billion of their Assets under Management’.

This is not the first time such an exercise has been undertaken; so the industry players are familiar with the process. The main message to come out this time around is the disconcertingly wide variation in the performance of individual firms.

The review was designed specifically to measure whether Wealth Management firms could demonstrate the suitability of both discretionary & advisory investment Portfolios managed for retail customers. This was achieved by assessing 150 case files from fifteen firms. The criteria used to asses these revolved around the following –

· Were Portfolios consistent with Client attitudes to risk?

· This kind of information was to be recorded & kept up to date

· Levels of Portfolio turnover to be consistent with an agreed investment strategy & not indicating churn or neglect

· Use of in-house products or funds to be seen as in the best interests of the client

Broadly the results showed that one third of firms sampled ‘raised no substantial concerns’; a further third ‘need to make some improvements’ & the final third ‘fell substantially short of our expected standards’. In terms of the 150 detailed client file reviews 34 (23%) showed a ‘high risk of unsuitability’ & a further 55 (37%) were classed as ‘unclear’. This is hardly a ringing endorsement of the industry’s ability to look after the best interests of its clients.

With identities being withheld, obviously finger pointing is off the agenda. However the FCA knows who they are & therefore I suspect for these firms 2016 will prove to be a challenging year in terms of undertaking the ‘significant remediation programs to raise standards ’ to satisfy the FCA.