The FSA's director of conduct and policy Sheila Nicoll has warned the wealth management industry that the approach it takes to suitability will come under more scrutiny, after the findings from a review of 16 firms proved 'really worrying'.
Nicoll said that from the review of 16 wealth management firms the FSA had concluded that four out of five files were unsuitable for clients or 'suitability could not be determined'.
In addition, two out of three files were not consistent with the firm's in-house models or the client's documented attitude to risk.
'We found that firms were not able to demonstrate suitability for a number of reasons, including the absence of basic 'know your client' information and a reliance on out-of-date information.
'Firm's were not adequately recognising the risks that clients were willing to take and the inconsistencies between porfolios and the client's attitude to risk, their investment objectives, investment horizon or the agreed mandate. This was compounded by firms not implementing Mifid client classifications,' Nicoll said at the CISI's annual conference.
From the review, the FSA often found no record of the client's financial situation or firms failing to obtain enough information on the client's experience and objectives. 'I am sure we all agree that these are basic things that we and clients expect firms to get right,' Nicoll added.
As a result the FSA is planning to carry out a follow-up review this year and said that the review had led to regulatory action with a number of firms and the implementation of a 'rectification programme'. An FSA 'Dear CEO' letter is due to be published shortly.
'Our overall messages for wealth managers are pretty clear. They need to make sure that they are compliant with suitability and are maintaining good records. They need to make sure that they have the right controls and risk management systems. Make sure that you are compliant'.