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How to respond to the FSA’s suitability review

by Danielle Levy on Sep 06, 2011 at 00:01

How to respond to the FSA’s suitability review

Wealth management firms might well have been taken aback by the Financial Services Authority’s (FSA) ‘Dear CEO letter’, which was published in the light of its findings that four out of five portfolios from a sample of wealth management firms were unsuitable.

The FSA’s review of 16 wealth management firms found that 14 of them posed a ‘high’ or ‘medium-to-high’ risk of detriment to their clients. Two out of three files were not consistent with the firm’s in-house models or the client’s documented attitude to risk and investment objective.

There was often no record of the client’s financial situation, or the firms had failed to obtain enough information on the client’s experience and objectives.

In its letter, the FSA expressed concerns about inadequate risk profiling and risk management systems and broader ‘deficiencies in the management and control architecture of firms’. It has asked firms to respond by checking whether client information held on file satisfies all necessary obligations. It has also suggested that firms sample a meaningful number of client files, and assess whether the information in them is up to date and portfolios are suitable, based on the client information recorded.

Will German, a regulatory consultant at Avantage, suggests the best way to approach the ‘Dear CEO’ letter is in a systematic manner.

‘When the letter hits your desk, you should treat it as a project. Conduct gap analysis of the letter and go through it line by line,’ German advises.

FSA wealth management ‘Dear CEO’ letter – steps to take

Richard Scrivener, a consultant at Bovill who formerly worked at the FSA, provides guidance on how to respond to the FSA's recent 'Dear CEO' letter on suitability.

You are a small wealth manager, managing client portfolios on either a discretionary or advisory basis.

You didn’t get sent the Financial Services Authority’s (FSA) ‘Dear CEO’ letter on wealth management but you think you should be doing something.

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4 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Sep 06, 2011 at 13:11

I am a private client of a broker and he has not been informed of my real wealth or status and i have no intention of telling him the exact situation. My risk status depends on the market and for the last yeaR it has been gloomy but if we get an up turn by 2013 or before my risk limit will change. In my book what I require is a broker to advise on shares and leave the decision to me. I do not want him or anyone else to know what my financial situation is.

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Sep 06, 2011 at 13:21

Has anyone ever considered that investors, read clients of FSA firms, might NOT want to divulge certain private (not necessarily financial) matters to the firms BUT in many cases want individual executives to harness their affairs on a bespoke basis? The interpretation and definition of suitability therefore is down to the client's own perspective of the market risk and it's NO BUSINESS of the FSA to impose this sort of claptrap that is so eloquently being masqeraded within the framework of the RDR. I fear that SUITABILITY is so closely aligned to STRUCTURED PRODUCTS, ABSOLUTE FUNDS and many other flavoursome idealogies that this will only drive business away although many more will get snared by this. Is it purely coincidental that fee structures are behind the RDR doctrine? Those of us used to a commission driven environment can see the drawbacks of RDR and a FEE FOR PRODUCT landscape that is conveniently being imposed here. And the reason why this is happening is because the regulators earn the bulk of their fees from the banks and large wealth managers and require the smaller IFA's and stockbrokers to get in line for these (ridiculous) products. Freedom and free markets are being extinguished by REGULATION. As for growth how can any SME really hurdle their way through this absurd minefield.

"Welcome to my nightmare, I think you're going to like it" ---Alice Cooper

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Anonymous 2 needed this 'off the record'

Sep 06, 2011 at 13:25

Does anyone else consider Richard Scriveners new position and role immoral. As someone who was party to the Dear CEO letter as well as a contributor in the Suitability review, he should surely be disallowed from joining a firm that FSA recommended to review this. I would go as far as say, ex FSA employees should have to wait a year before joining a regulated firm.

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Charles Forster

Sep 06, 2011 at 14:38

What a suprise the Firms not meeting the requirements of the FSA.

The FSA not meeting the requirement of Treasury remit

The Treasury not meeting the requirements of Government

Goverment not meeting the needs of the ellectorate.

What started as a good idea has ended up a mess,

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