British wealth managers and private banks have made progress in demonstrating the suitability of their clients’ portfolios, however, some firms need to make substantial improvements in client information practices as well as ensuring the portfolios they manage truly reflect the needs and risk appetite of their customers, the Financial Conduct Authority (FCA) in its thematic review by has found.
The review, which covered 150 customer files from 15 firms, found that 23% of the firms indicted a high risk of the client having received unsuitable advice and a further 37% of the files showed that the wealth manager’s advice was ‘unclear’.
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Overall a third of firms covered in the review fell substantially short of expected standards.
Britain’s financial regulator said that it is considering enforcement action against five firms whose investment portfolios are so out of line with client needs. The regulator added that these five firms may be required to undertake significant remediation programmes to raise standards.
In its review, FCA found that many firms are still unable to demonstrate suitability due to a lack of up-to-date customer information, poor risk profiling or failure to record customers’ financial positions.
In one case, it found no indication that one file had been updated "between the customer taking up the service in October 2010 and our requesting the file, 4.5 years later".
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By GlobalDataAlso some companies were found to be exploiting elderly customers. Shockingly, savers in their 80s and 90s – having a medium-risk appetite- are being persuaded to place 20-year bets on the stock market, the FCA remarked.
Megan Butler, FCA director of supervision, investment, wholesale and specialists, said: "The UK wealth management industry plays a vital role in delivering financial services. It is positive that a number of firms have taken steps to improve and demonstrate the suitability of their clients’ investment portfolios.
"We are concerned, however, that some do not appear to have heeded the messages we have put out in recent years, and taken steps to identify and correct problems we’ve previously identified. Getting suitability right is fundamental to providing a portfolio management service that meets customers’ needs."
The latest review follows a similar review in 2010 undertaken by the FCA’s predecessor, a Dear CEO letter in June 2011 and further work in 2012.
