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Does operational sloppiness lie at heart of suitability review?

by Danielle Levy on Nov 16, 2011 at 07:00

Does operational sloppiness lie at heart of suitability review?

The FSA’s suitability review has exposed weaknesses in the systems and procedures of several wealth management firms, causing some to question whether this in fact lies at the heart of the issue.

Following a review of 16 wealth management firms, the FSA found that 14 were judged to pose a high or medium risk of detriment to clients, causing the regulator to publish a ‘Dear CEO’ letter.

‘The word on the street is it doesn’t matter what response you gave [to the Dear CEO letter], you will have a follow-up visit,’ said one senior executive at a large wealth management firm.

‘The FSA is having a look at all firms on an impact basis and are looking for consistent client risk assessment, repeatability of process and an audit trail of how decisions are made and how the alignment to the client’s risk appetite is achieved and maintained over time.’

Richard Scrivener, a regulatory consultant at Bovill and co-author of the ‘Dear CEO’ letter during his time at the FSA, believes integration challenges following acquisitions have played a key role alongside a historical lack of regulatory oversight.

‘Quite a lot stems from a lack of regulatory oversight in this area, which has bred complacency at firms. This is something that has struck us over the last few months,’ he said.

‘Although firms have been quick to bring on new clients through acquisitions or hires, systems are often the last thing to be integrated, he explains, presenting challenges later down the line.

‘There is still a feeling that the fund manager owns the client rather than the firm, and the fund manager retains the information because knowledge is power,’ Scrivener said.

He added unsuitable portfolios tend to be more of an issue at an individual level, rather than a company-wide problem.

‘There are sporadic patches of potentially unsuitable portfolios and sometimes they come as a surprise to the firm that they have got these portfolios because they thought things were tightly managed, so this is possibly more on an individual basis than a systemic company-wide unsuitability,’ he said.

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1 comment so far. Why not have your say?

Knowledgable insider

Nov 17, 2011 at 10:33

The way this is running it wont be long before the FSA dictates how each investor's portfolio is placed...but of course this wont happen as then, the FSA might be in danger of actually making definative statements/advice and we all know they never do that as they prefer wiggle room.

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