Suitability crackdown: have firms taken heed of FSA warnings?

‘Absolutely we have a programme and recognise the FSA is fundamentally right about suitability. They have struck a raw nerve and even if you do not believe this and you put your head in the sand, you should have a programme to deal with it because it is too risky not to,’ the CEO said.

Ditching smaller clients

Perhaps the biggest consequence of the firm’s internal review is that it is likely to shed several smaller clients, who are increasingly unviable from a cost perspective.

The CEO anticipated this could amount to a double-digit percentage of the company’s client base, albeit representing only a small proportion of total assets under management.

While increased scrutiny of suitability, alongside adviser charging as part of the retail distribution review, is likely to leave smaller clients without advice, he believes this is a trend the FSA quietly supports.

‘Maybe this is what the FSA intended: that no advice is better than bad advice,’ he noted.

His comments on expenditure support research by consultancy Compeer, which recently found that an elevenfold increase in suitability spending across the industry, to around £100,500, had played a key role in driving expenditure on regulatory costs to an estimated 10% of total income.

For national wealth management firm Rathbones, the fallout from the suitability review appears to be less far-reaching.

The firm’s head of investment management Paul Chavasse said: ‘We think we are well positioned for this. We have not made significant changes, it has been more about tightening up what we are already doing. One of the key things we see coming out of it is that you have got to get documentation right.

‘It is not right if you know the client said this or that, but the information is buried in the investment manager’s head. It has got to be on paper and you need to have evidence this has been discussed with the client.’