View the article online at http://citywire.co.uk/wealth-manager/article/a516882
FSA 'Dear CEO' author: don't fear bespoke portfolios
by Danielle Levy on Aug 22, 2011 at 09:15
The co-author of the FSA’s recent ‘Dear CEO’ letter on suitability has urged wealth management businesses not to be afraid of running bespoke portfolios in the future.
Richard Scrivener, who recently left the FSA’s conduct and risk team to join consultancy Bovill, said he was concerned the regulator’s ongoing suitability review might cause firms to shy away from running bespoke portfolios in favour of models, which isn’t what the FSA is seeking to do, he said.
‘Don’t be afraid of bespoke portfolios. If it is a bespoke portfolio, say it is a bespoke portfolio and the regulator will see it as a bespoke portfolio.
‘As there is such a focus on suitability there may be a temptation to say, “We have to categorise all of our clients and slot them into a box”. But the problem with this is the regulator will look at the box and say “medium risk has been ticked, yet the client is 100% in overseas equities” and ask “why is that?” If a client wants 100% in overseas equity that is fine as long – as it says so in the client’s documentation,’ Scrivener explained.
Scrivener’s comments follow an FSA review of 16 wealth management firms in which the FSA concluded that 14 of the 16 posed a high or medium-to-high risk of detriment to their clients, with four out of five files deemed unsuitable for clients or their suitability could not be determined.
In addition, two out of three files were not consistent with the firm’s in-house models or the client’s documented attitude to risk. There was often no record of the client’s financial situation, or firms had failed to obtain enough information on the client’s experience and objectives.
Scrivener, who helped draft the recent ‘Dear CEO’ letter during his time at the FSA, said the regulator had been confused by firms putting information forward in client files under review without proper explanation.
The ‘Dear CEO’ letter was published in response to the findings from the review of wealth management firms alongside the FSA’s Assessing Suitability Guidance published back in March.
Scrivener said the FSA had taken issue with firms that have actively promoted their model portfolio ranges, stressing risk and investment committees as part of a detailed process as a unique selling point, and then delivered something different to the client.
News sponsored by:
As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.
Today's top headlines
With talk on interest rates on the horizon, our latest roundtable debate covers income investing against a changing backdrop