A number of wealth management firms and private banks are continuing to fail in monitoring how their in-house investment propositions are being used by clients, an FCA thematic review has found.
The findings of the review into conflicts of interests arising from the use of in-house propositions found that firms with large amounts of assets in their own products were at risk of not fully considering how their propositions align with clients’ best interests.
The review states that whilst there was a heightened focus by senior management on conflicts of interest, a fall in biased remuneration structures and increasing levels of due diligence, there were still failings by firms.
The regulator says it found shortcomings in how firms explained the relationship between themselves and their in-house proposition, a lack of monitoring of clients’ portfolio structures and managing conflicts of interest.
The review was conducted across 18 firms with total assets of £146bn.
Around 20 per cent of those assets were held within in-house investment propositions.
The FCA says some firms were “inconsistent and ambiguous” whilst saying they were restricted but also claiming to be “scanning the universe” for the “best class of” products.
FCA head of wealth management and private banking Robert Taylor says: “We found most firms identified and addressed potential conflicts of interest – however, there is more that they could do to maintain high professional standards.
“We’d like to see all wealth management firms that make significant use of in-house products able to explain how this fits within their wider business strategy and is aligned with their customers’ interests. We’d also like firms to ensure they have clearly explained the use of IHPs to their customers”.
Key FCA findings:
- Firms generally recognised potential conflict of interests, and some firms engaged third parties to report on their effectiveness of their controls. Most firms had identified and recorded conflicts of interest that arose in relation to distributing IHPs and had mitigation plans in place.
- Although firms were generally clear about the relationship between the distributor and product manufacturer, in some instances, there were inconsistent and ambiguous terms which could leave consumers unclear of exactly what service they were offering and the likely extent to which they would use IHPs.
- Several firms with high proportions of assets under management invested in IHPs did not monitor how these were used in customer portfolios.