Coutts’ decision to warn all of its UK clients of potential suitability issues with their portfolios could just be the tip of the iceberg for the industry, leading voices have warned.
John Dance, managing director at Vertem Asset Management, expects to see a more interventionist approach from the Financial Conduct Authority (FCA) four years since its initial suitability warnings.
‘I think the regulator has spent a number of years warning, advising and throwing “last chance saloon” opportunities at investment companies,’ he said.
‘I don’t think it will be long before they effectively wind companies up if they have not addressed issues. I think their patience is running out and they will start taking firmer action. How long can it go on for?’
While he recognises the difficulties large companies face in terms of proving suitability on a historic basis – the scenario Coutts is currently grappling with as it reviews investments dating back to 1957 – he is surprised that some companies have taken so long to react to the regulator’s warnings.
‘I am surprised that a lot of industry participants have not really taken those opportunities to get their house in order. It seems strange that people are only addressing this now. It has been part of our environment for five or six years.’
He expects the PPI claims companies that have sought to win payouts from banks could now turn their attentions to investment advice. ‘I would not be surprised if “have you been given unsuitable investment advice?” is the next compensation culture.’
Coutts is not alone. A portion of the wealth management industry is getting to grips with how to prove suitability, potentially due to inadequate systems and processes historically.
Robert Hupe, a consultant at Knadel, expects other firms will be watching the fallout from Coutts’ internal suitability review carefully and could follow the private bank’s example.
‘I think there could be other organisations that follow suit and will naturally be looking to see the fallout from Coutts and how it has been received by clients and regulators,’ he said.
‘That may determine the way they follow suit. I do think there are a number of organisations that are not as far down this path as they should be and this, along with a continued focus from the FCA, should mean they continue to have this as a high priority for them to resolve.’
Hupe is still speaking to organisations that need to do more in terms of reviewing legacy positions and putting in place processes and controls for suitability.
‘I have not seen anything on this scale, and I think Coutts is taking an admirable approach to dealing with this, as long as they can follow through, rectify and put processes in place going forward,’ he said.
He does not expect to see another regulator-led thematic review on suitability but anticipates further fines and Section 166s. ‘I think the regulator wants to keep this top of the agenda and at the forefront of wealth managers’ minds. One of their roles is about protecting the end-investor. This is as crucial to that as can be.’
Regulatory consultant Mike Browning adds the industry must be aware of the application of hindsight. He does expect there will be further thematic and supervisory reviews, plus more section 166s and enforcement to come.