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The Taylor effect: how will ex-Kleinwort chief shape FCA wealth arm?

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The Taylor effect: how will ex-Kleinwort chief shape FCA wealth arm?

Senior wealth management executives have welcomed the appointment of an industry practitioner at the helm of the Financial Conduct Autority’s (FCA) new wealth management arm.

However, some have questioned whether Robert Taylor’s pure private banking background will affect his approach to regulating a sector that is broad in its nature.

Taylor (pictured) will start as head of the FCA’s wealth management and private banking unit in early February. Many industry professionals hope the crucial appointment will mark a move away from its traditional IFA-centric regulatory focus. They also hope the new division will create a better understanding of the different business models within wealth management.

The incoming chief has held several senior roles in private banking (see below), which include CEO of Kleinwort Benson and head of private banking at Coutts between 1995 and 2004.

His experience has been welcomed by the Wealth Management Association’s director of regulation Ian Cornwall. ‘They [the FCA] have brought in a senior hitter who has spent a lot of time in the industry. He is not a regulatory expert but should enable that knowledge to be more widely spread throughout the [FCA] as a whole.’

Stuart Fowler, the founder and director of Fowler Drew, acknowledged Taylor’s extensive roles in private banking but questioned whether he is ‘just a business manager or really understands portfolio management’.

‘Taylor’s business experience is limited to private banks, which is where there are the most exploitative business formats in private wealth – perverse sales incentives, in-house product manufacturers and opaque sources of income. It is also where the worst value propositions are.

‘Can [he] really help the FCA form an overarching set of views based on coherent intellectual positions, which is what they have lacked for a number of years?’ he added.

Fowler is hoping Taylor will redirect the regulator from its traditional focus on the financial adviser business model, which he believes has ‘skewed their approach to the rest of the wealth management industry’.

In his view, the retail distribution review (RDR) and subsequent ‘Dear CEO’ letter implied the regulator had little knowledge of the different ways clients interact with stockbrokers, private banks and discretionary managers, particularly in comparison to advisers.

‘It’s not just about “fixing” problems within the different models but also to ensure the FCA understands the differences better,’ Fowler added.

While he believes the FCA’s focus will be on suitability and documentation processes, Novatis AM’s investment director Frank Dolan hopes the regulatory framework will encourage top quality service to clients ‘without unduly constraining advisers through fear of breaching rules that do not necessarily do what they are intended to do’.

Focus on the big players

Guy Stephens, managing director of Rowan Dartington’s discretionary division Signature, says the focus should continue to be on the big players rather than the small operators.

He also hopes the issue of payments of any kind that are made in relation to discretionary fund manager (DFM) panels will be addressed under the new division.

‘It is still common practice that you have to pay to be appointed to panels. You don’t go through a normal scrutiny of a beauty parade and that’s it. Now if you don’t pay £25,000 to be on the panels, you don’t get on them.’

This ‘marketing support’ should be regulated on the basis of the RDR commission ban, Stephens said, because it cannot be consistent with the RDR. An adviser who is on the panel would have a restricted choice of DFMs ‘who are only there because they have paid up’.

‘Small players like us don’t have bottomless pockets and it means it’s the big boys that are left populating these panels. They’ll easily delegate £1 million a year just to be on the panels,’ he added. ‘The practices frustrate the hell out of me, but that will probably not be his [Taylor’s] first focus.’

Time for transparency

Alan Miller, CIO and co-founder of SCM Private, cites conflicts of interest as one of the biggest issues he hopes the FCA wealth management arm will tackle.

‘If you are running a portfolio and receive a commission or make a charge per trade, that is bound to conflict with the interest of the consumer who would be better off not trading,’ he explained. ‘It has not been addressed yet and a lot of wealth managers are still charging up to 1% commission per transaction.’

Robert Taylor’s CV

Qualifications

1982 Degree in international affairs, Lewis & Clark College, Oregon

1986 Masters in journalism, Columbia University, New York

Career

2004-2011: Chief executive officer at Kleinwort Benson

1999–2004: Head of private banking and executive committee member at Coutts

1998-2000: Managing director at SG Hambros Bank & Trust

1994-1997: Credit product sales manager for Western Europe Private Client

1990-1994: Financial consultant at Merrill Lynch International Bank, Berlin

1986-1990: Financial journalist on The Bond Buyer, New York

1982-1985: Worked for Les AuCoin, a Democrat from Oregon

Other positions

2011-present: Guest blogger on The Guardian 2005-present: Chairman of the Whitechapel Art Gallery

2004: Turner Prize juror

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