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How to respond to the FSA’s suitability review
by Danielle Levy on Sep 06, 2011 at 00:01
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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