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Wealth managers to face closer scrutiny as FSA unearths ‘widespread' failings

by Emma Dunkley on Aug 29, 2012 at 11:23

Wealth managers to face closer scrutiny as  FSA unearths ‘widespread' failings

The Financial Services Authority (FSA) is contacting firms offering wealth management services after identifying ‘significant widespread failings’ around record keeping and suitability and has said the sector may face tougher supervision as a result.

The watchdog wrote to all chief executive officers of wealth management firms in July, highlighting research that revealed major failings based on a sample of firms.

However, the FSA is concerned these failings stretch beyond this sample and are prevalent among other wealth managers.

The FSA said: ‘We have now commenced a new phase of thematic work and will, again, be making judgements on the suitability of client outcomes but also complementing this approach with a direct assessment of firms’ systems and controls.

‘We will be acutely interested in whether firms have heeded the warnings and concerns contained within our previous communications.  We will provide further updates on this work in 2013.’

The watchdog said it continues to work with firms from the first batch it assessed, in order to mitigate the risks and concerns that have already been identified.  In some cases these led to enforcement referrals, skilled person’s reports and remediation programmes.

The FSA said it will plans to interview key individuals from all these firms so it can understand the approach they have taken to remediate the problems revealed in their client portfolios and whether they have been ‘rigorous’ In dealing with previous issued that may have caused consumers to suffer.

Subsequent to these interviews, the FSA will consider whether to take further regulatory action, it said.

In the initial ‘Dear CEO’ letter the FSA said that its findings aired concerns there is an ‘unacceptable risk’of clients of wealth management firms experiencing unfavourable outcomes.

It said: ‘The failings may point to deficiencies in the management and control architecture of firms, so wealth management businesses can expect to see continuing and increasing supervisory focus.’

7 comments so far. Why not have your say?


Aug 29, 2012 at 12:23

Good news for compliance consultants!

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Insiders Comment

Aug 29, 2012 at 12:32

Yet more work for the monkeys at the FSA - this is all about keeping their jobs!! Blame the Governmeent as they have had plenty of opportunities to reign in this lunacy ...the next ballot box will provide the opportunity to show this spineless government what you think and i say this as a life long conservative.

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Aug 29, 2012 at 12:59


Since 1986 this has been the favourite word used by regulators as they try to pidgeon hole brokers and clients, investment managers and investors. It's got so bad they have now allowed ex-bankers, ex-hedgies, new age asset managers, to rebrand us all as WEALTH MANAGERS. Personally I find the whole thing thoroughly distasteful. For generations portfolio managers never charged anything until the cost of regulation forced everyone down the FEE based route. Now there's more print focused on fees, brokerage charges than investment in actual businesses. But the regulator and the compliance regime are NOT interested in businesses as they prefer everyone to invest in funds. Yet so many institutions running these funds manage to ignore huge swathes of business putting everything on to a short-term measure.

It's hopeless and blatantly a gross FAILURE of regulation.

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scottish stockbroker

Aug 29, 2012 at 14:49

The FSA's track record is lamentable yet they continue with this "theme" of suitability. If things are as bad as they think where are the client complaints? Where are the actual clients who have been disadvantaged/mis sold ?

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David Couch

Sep 02, 2012 at 09:24

My experience of working in - and with - many wealth management firms over 20+ years is that there are good and and not so good advisers in all of them. It's only right that clients should be the focus here not the investment managers/advisers, the firms or even the FSA. The reality (however unpleasant that might be) is that there are plenty of examples (based on what I've seen first hand) of where insufficient work has been done by the adviser to establish the client's requirements, their personal circumstances, their knowledge and experience of investing, and the suitability of specific investments. For those advisers who truly care about their client and want to do the right thing by that client there should be nothing to fear from the FSA. If advisers want to be treated like professionals they should begin by behaving as such and I would like to think that any 'wealth manager' worth their salt would agree with me.

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Sep 03, 2012 at 09:31

I wonder if you are a compliance consultant these days, Mr Couch?

I don't think anyone would disagree with your premise that some people do a better job than others. But I would disagree with your argument that there should be nothing to fear from the FSA. I seem to remember Hector Sants telling us we should all be very afraid. Perhaps he misunderstood what his empire did. Perhaps not.

What most consultants fail to grasp is that if regulation costs firms 10% of their turnover, it can't be working properly. I have experienced the FSA approach at first hand, and it was a thoroughly unpleasant experience - unprofessional, disorganised and altogether third-rate.For as long as regulation consists of checkboxes ticked by poorly-trained staff, our experience will continue to be the norm.

The question we should all be asking is how would we change regulation to make it both more effective and more supportive.

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David Couch

Sep 03, 2012 at 10:23

I too have had to deal with FSA one more than one occasion - in my capacity as a compliance officer, as a compliance consultant and as a chief executive and I would not disagree that any of these instances was a pleasant experience. On one particular occasion I was so disgusted by their total lack of professionalism that I nearly walked out of a meeting with them - and I made it clear at the time that is how I felt. However, as a professional one must and should rise above such shortcomings and deal with them as you would with anyone who behaves that way - through discussion and intellectual debate - avoiding the temptation to lower oneself to their way of doing business.

Clearly, if regulation is costing 10% of a firm's turnover there is something which is not working - I doubt even the FSA would disagree with that, and I have been arguing for some time that the statutory requirement of FSA to carry out a cost/benefit analysis whenever it wishes to implement change is often done in a very casual and dismissive way. I may be wrong, but I cannot recall an instance when the cost/benefit analysis for a new piece of regulation showed that the costs outweighed the benefits and therefore the new regulation would not be introduced.

Putting all that asided, though, fundamentally it is essential that we have regulation - for all our sakes. Of course there is always room for improvement and it will be interesting to see how the new FCA and PRA changes the way the regulatory processes are handled - maybe that will be an opportunity for practitioners and trade bodies to voice their concerns.

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