Coutts is to review every client investment dating back to 1957 in one of the most thorough suitability reviews ever carried out in the industry.
The then Financial Services Authority’s ‘Dear CEO’ letter put the suitability of client portfolios firmly under the spotlight and Coutts chief executive Michael Morley (pictured) said the private bank decided to carry out its internal review when it implemented the retail distribution review (RDR) in November 2012.
‘As we approached the RDR it became very clear to me that we needed to put in place a service that looked and felt very different to the process we had before. We wanted to set the standard for what we thought it should look like in the new world,’ Morley explained.
‘If we didn’t apply that historically, can we say with absolute certainty and conviction that all of our investment sales have genuinely been suitable? The only way to get this certainty was to go back and look at every investment our clients have had at the date of implementation by Coutts of the RDR on 26 November 2012.’
The scale of the project is huge with the private bank’s wealth managers reviewing all client portfolios - the oldest of which dates back to 1957 - and the work is not expected to be completed until early 2015. Many of these records are obviously paper-based but over time Coutts will look to digitise its historic files using the Avaloq back office system it adopted in April 2012.
‘If you want to do this properly, you can’t set an artificial line and only look back at investments after that time. It’s a big exercise, but it’s the right thing to do. We intend to be around in 2057 and 2157.’
Morley stresses that although Coutts has been in regular dialogue with the Financial Conduct Authority, ‘we are not subject to enforcement action and we do not expect to be subject to enforcement action.’
Like many of its peers, Coutts has already faced enforcement action and was fined £6.3 million in 2011 over suitability issues around its sale of an AIG fund. The likes of HSBC and Barclays have received even larger fines, reflecting the extent of the FCA's clampdown on the sector.
Morley said now it is very much a case of building a business for the future and remedying any past mistakes. If any clients are found to have suffered losses due to unsuitable investments, they will be offered compensation to put them back in the position they would have been in had they not had that advice.
The number of portfolios and the potential cost of redress are not known, and Morley admits that Coutts’ wealth managers will have a lot of work to get through reviewing client files.
Despite this, he does not expect the exercise to stunt growth in the short-term and backs the review to ultimately help attract and retain assets.
‘In the UK we are looking to lead the market in private banking and wealth management. I sense that by going back to clients and ensuring that the advice is based on their needs, we will build trust and this will help grow the business,’ he said.
‘This particular year the wealth managers have their hands full, but the private bank carries on as normal.’
Coutts split wealth management and private banking roles as part of a revamped Wealth Management Advice Service, which was launched in November 2012.
Morley sees the potential for growth on several fronts, including its lending facilities and building its market share in both the resident non-domiciled and small and medium-sized enterprise markets.
Lending is up 35% year to date and parent group Royal Bank of Scotland is looking to offer a more integrated service to the small and medium-sized enterprise market in which it has a 30% market share. This will see the executives of these client firms offered private banking through Coutts.