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FCA targets wealth managers and private banks with new division

by Michelle Abrego on Jul 04, 2013 at 07:05

FCA targets wealth managers and private banks with new division

The Financial Conduct Authority (FCA) has outlined how it will monitor the wealth management and private banking sector and warned it to expect further thematic reviews.

Speaking at the Association of Private Client Investment Managers and Stockbrokers (Apcims) compliance conference, Clive Adamson, FCA director of supervision, said that the sector was under scrutiny and that the regulator would examine its sale of in-house products and how it handled conflicts of interest.

He said: ‘We want to see that you have thoroughly considered any potential conflicts of interest and will look, for example, at how many in-house products or products manufactured by an associate of the firm are held within individual portfolios – questioning whether this is right for the customer.

Adamson (pictured) said that if firms' records of customers’ attitude to risk and reasons for investing were not clear the regulator would question why.

The sector will be monitored by the FCA’s new wealth management and private banking department, due to go live 15 July, which will look at firm’s business models, strategies, culture and front-line staff.

Adamson said ‘Essentially, it is a shift from looking at how a firm controls itself to how it runs itself. The reason for this is that we believe these areas are some of the primary drivers of poor behaviours.’

Adamson also said that the regulator will be more transparent about their interests ahead of starting thematic reviews, which it has stated will be their primary way of delivering ‘conduct priorities’.

He said: ‘We are in the final stages of setting up a wealth management and private banking department at the FCA in order to provide an area of expertise for this important sector.

‘In time, we will also conduct further thematic work in this space. But pending that and given the complexities of the businesses operating within this industry, we believe that firms should focus on a number of key areas.’

The key areas include:

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24 comments so far. Why not have your say?

Jonathan Kirby

Jul 04, 2013 at 09:14

If this is aimed at the likes of SJP it's not before time.

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Man in Black

Jul 04, 2013 at 09:32

I suspect its not the SJP sales outfits that Clive has in mind here: the FSA's definition of 'wealth manager' has always been a little fuzzy, but is basically centred around stockbroking types doing discretionary e.g. old IMRO and SFA territory rather than PIA.

These firms have traditionally been supervised a little differently - one ex CEO of an SFA firm described the attitude as "You were basically a good chap, but just incompetent" contrasting the PIA attitude of "You're a crook unless you prove otherwise."

Practically, this means that whilst IFAs have long been exposed to tricky requirements in respect of KYC record-keeping and the like, even though its taken 20+ years to bed in. By contrast, some of the crusty old stockbroking firms are still extraordinary in terms of KYC, risk profiling and what have you - and have largely been allowed to get away with it.

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RegulatorSaurusRex

Jul 04, 2013 at 09:41

Stockbrokers and their ilk have had an easy time of it until now.

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Anitaki

Jul 04, 2013 at 09:55

Perhaps they have realised that some people have been very successful in transferring other people's wealth into their own wealth

SOME of this has been via "referrals" to 'below the radar' schemes.

I saw one on the web just last night, based in the Midlands, guaranteeing a 25%p.a. return based on "armchair property investing"

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Simon Kershaw

Jul 04, 2013 at 09:57

A good starting point would be to ask the fund management groups to identify those wealth managers who receive trail commission from full-fat i.e. retail share classes. For far too long have these pin-striped robbers got away with this scam.

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Hickky

Jul 04, 2013 at 10:18

I feel those firms who proport to be wealth managers but sell portfolios that are little more than a Managed fund or fund of funds should be concerned. Those private banking divisions of major banks that do little more than flog their in house product and the DFMs that are owned by firms that also own fund management houses should expect a visit just to ensure any conflicts are properly documented.

Barclays used to run a half decent DFM up till the early 2000s but replaced it with a 'manager of manager' proposition that distroyed its individualised proposition, meaning the main beneficiary from the change was Barclays and it was rumored that lots of fees were passing from the underlying investment houses back to themselves. Pity this FCA division did not exist then.

But what about the 'wealth managers' who have their own in-house funds packaged up as a multi asset, risk managed fund that, surprisingly, suits all their clients receiving advice (charged on time taken). The advice division is often a seperate limited company to the fund management side, where the investment committee receives 1% plus VAT for their oversight as a 'wealth manager'. A 0.7% management fee (variable) is also charged as well as the underlying institutional fund managers charges. Does being 'restricted' mean this behaviour is OK? Perhaps this new division will investigate.

At least SJP has its own version of better known funds, the only difference being the charging structure that pays advisers in a round about way. I am not sure this method, that seems to get around the commission ban in my eyes, is in the spirit of RDR. Perhaps this new department can look at them later on, when their initial investigations, conclusions and fines are completed. I guess they will have to prioritise!

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Hickky

Jul 04, 2013 at 10:23

Simon, don't you own a pin stripe suit? Red braces? A pair of Brogues? A fake regimental tie?

The pin stripe robbers I seem to come accross are Private Medical Consultants that are full time NHS as well. But thats for another day.

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Andrew Dickson

Jul 04, 2013 at 10:34

FCA definition of "wealth manager" a little fuzzy?

There is NO definition of "Wealth Manager" anywhere in the regulations.

The new Department for Wealth Managers etc will be questioned on the extent of its remit if it is unable to define PRECISELY which firms it is responsible for (without duplication of work already being done by other parts of the FCA).

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Paul Claireaux

Jul 04, 2013 at 10:40

Where are customer's yachts?

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Simon Kershaw

Jul 04, 2013 at 10:45

@Hickky.

No to suit, tie and braces. A pair of Loakes always.

As to medicos and fees I fully concur.

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Hickky

Jul 04, 2013 at 11:11

Simon, buy a black chalk pin striped suit, when you see a hospital consultant wearing one it really messes with their minds and bucks them up!

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Smudger 2

Jul 04, 2013 at 11:15

www.findawealthmanager.com

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Smudger 2

Jul 04, 2013 at 11:16

www.findawealthmanager.com

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RegulatorSaurusRex

Jul 04, 2013 at 11:36

The problem with "Wealth Managers" is their lack of interest (or inability) to offer a complete service to consumers which covers every aspect of their needs.

A bit like a clothes shop selling nothing but pin-striped suits, red braces and brogues.

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c.nicol

Jul 04, 2013 at 14:01

Hickey and Kershaw; Re private medical. Your comments re NHS Consultants private work is hypocritical beyond belief.

Few in FS would be able to pass the 14 yr long exams and hurdles to get to that position...and that's just for those that make it.

Few in FS would work the hours and conditions necessary to arrive as a consultant...and they get paid circa £100k while mid tier IFAs who play golf on Friday and do a routine job get paid double that figure.

If you had refined and rare skills developed over 20 yrs then you would want to be rewarded.

I hope, when receiving your triple bypasses, the surgeon and his support team are not stressed as a result of restricted income .

You are going to charge this surgeon £250 per hour to adjust his pension.

How much should he get to adjust your mitral valves.

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Hickky

Jul 04, 2013 at 15:51

@C Nichol

I have learned over the years that doctors and consultants do not need to be super intelligent but do need to have dedication. An orthopaedic surgeon is little better than a good carpenter, and the skills needed for all but the best neurosurgery are similar to a watchmaker.

Most local consultants are earning over £200,000 p.a. including private work. They now get paid overtime by the NHS.

They have to put up with innumerable Nice guidelines, malpractice suits and government statisticians interference as well as local management failings. The lifetime pension allowance, 45 0/0 income tax and loss of personal allowance are nearly as big an issue.

Why is it that a consultant in Germany or France earns a half of our NHS paid ones.

Although I respect them, they are human beings after all. P S I don't charge anyone 250 per hour.

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Simon Kershaw

Jul 04, 2013 at 16:01

@c.nicol

Hypocritical?

I have spent the last two years living with the repercussions of serious injury and disastrous surgery. My experience informs and colours my comment.

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c.nicol

Jul 04, 2013 at 16:24

cant disagree with your points.

But; to get to the point that you specialise you need to be bright.and train for 14 yrs ++..you say "doctors and consultants" many get stuck in the ranks and we are talking of the consultants.

Private work does not exist in all specialisations.

Specialisation inevitably leads to repetitive work. The value is not simply in the moment of surgery but in the need to keep current and in the research and training some ( not all) also do.

So 200k inclusive of private work sounds fair....and not forgetting private work is not on NHS time.

Average specialist pay in '000 dollars:

Netherlands 253

Australia 247

USA 230

Belgium 188

UK 150

Ireland 149

France 159

Switzerland 130

Germany 77

Why more than Germany...because they all go and carve wood or make watches I guess.

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RegulatorSaurusRex

Jul 04, 2013 at 16:24

My mother in law is 73, she has never had a successful operation, intestines stitched to other bits, things left in, eyes ruined by a Croat idiot.

My wife 'broke' her ankle according to a consultant in a pin-stripe suit, years later when problems arose another consultant was shocked by the incorrect diagnosis and unnecessary treatment.

I don't know what is worse, ill health caused by the medical profession or poor wealth caused by 'advisers' which goes on to cause ill health or a combination of both.

People who throw stones should not live in glass houses.

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c.nicol

Jul 04, 2013 at 16:26

Simon; You don't have a leg to stand on then

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c.nicol

Jul 04, 2013 at 16:54

Regulator Saurus Rex; Why did you make your mother in law live in the greenhouse?

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Simon Kershaw

Jul 04, 2013 at 16:57

@c.nicol

Are there pompous, self important, often inept and sometime incompetent wealth managers/IFAs who believe that they are justified in charging extortionate fees purely because they are good chaps who have put in the legwork - and wear a chalk-striped suit?

Of course there are but they are in the minority.

Now substitute consultant for "wealth managers/IFAs" in the question.

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Jonathan Kirby

Jul 04, 2013 at 17:02

Have a lot of sympathy for a consultants

I know one whose normal shifts are 12 hours and recently called in at midnight, worked all night and then the following 12 hour shift as otherwise the list would have been cancelled.

I moan a lot about our increased workload, but are there any IFA's doing that amount of work?

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RegulatorSaurusRex

Jul 04, 2013 at 17:03

We regulators don't get out much, we need a distraction.

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