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FSA suitability probe: stockbrokers have most to fear

FSA suitability probe: stockbrokers have most to fear

Wealth advisers are set to face increased pressure from the regulator over the suitability of their advice, but some argue they will prove better able to cope than the stockbroking community.

The FSA recently found that of 16 key wealth managers it reviewed some 14 posed a high or medium-to-high risk of harming their clients through unsuitable advice. It also found that in terms of record keeping, two out of three files were not consistent with in-house models or the client’s documented attitude to risk.

Regulatory consultant Avantage has warned the same level of scrutiny will soon be applied to top-end IFAs, who are focusing on the high net worth space. Consultant Will German said this type of adviser should start to respond internally to the FSA’s recent ‘Dear CEO’ letter on suitability.

‘Top-end IFAs should carry out the same analysis as wealth management firms. Internally they need to look at themselves in the same way. They are operating in the same market and ultimately will be judged by the same standards,’ warned Avantage consultant Will German.

However, Rob Stevenson, a consultant for Kingmakers Group – which has led a number of financial advisers through the process of becoming wealth managers – argues that advisers will prove more resilient than the wealth management firms who were criticised in the recent ‘Dear CEO’ letter. ‘There is a big difference between financial advisers and those coming from a stockbroking background. IFAs have suitability drummed into them. So when they set up their own investment management businesses they are ready. I think IFAs are better placed than big stockbrokers who have not had an enormous grasp of this issue.

‘When I have gone into stockbroking firms, I have found that they are just picking Apcims portfolios. Their focus on running the money means that at the early stage of investigating a client’s needs they have a thing or two to learn from good IFAs.’

This criticism is accepted at least partly by Paul Killik, founder of Killik & Co, who concedes stockbrokers might have suffered under the suitability crackdown more than IFAs.

‘If there is a criticism of our industry it is that we have not been the best documenters. I think most stockbrokers know their clients very well but in the eyes of the regulator, unless it’s written down, it doesn’t happen. Perhaps financial advisers have been better at that, but it doesn’t mean the advice has been less suitable. But it is a criticism we have heard and are doing something about,’ he says.

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