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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

FSA 'Dear CEO' author: don't fear bespoke portfolios

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.

FSA findings

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.

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3 comments so far. Why not have your say?

David Cowell

Aug 22, 2011 at 11:11

"Know exactly what levels of risk..." Can someone tell me how, in something so subjective, exactitude is possible?

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Compliance Officer

Aug 22, 2011 at 15:57

It is interesting that the FSA made a great play of saying that risk does not equal volatitlity yet on the new EU driven KIID that is precisely how risk is defined.

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PCIAM

Aug 30, 2011 at 11:36

It's too good to be true!

Here we have a regulator who helps to define a new initiative, gives it a catchy name, gets a media headline or two, and then sends out an opaque letter that sound grim but explains little.

Then he resigns, joins a consultancy and charges firms to explain what his letter really meant.

Richard Scrivener will clearly go far.

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