The FSA is carrying out an investigation into the conduct of wealth management firms after identifying poor practices including increasing clients’ risk levels and poor record keeping.
In its Retail Conduct Risk Outlook, published today, the FSA says it found poor practices after analysing wealth management activities of banks’ wealth management arms and independent wealth managers.
The FSA says: “We carried out some analysis on wealth management activities in a number of firms (including several independent wealth managers that are not subsidiaries of banks), which identified poor practices, including increasing clients’ risk levels, unwarranted use of complex, illiquid, high-cost products, the use of convenient statistical data that understates particular risks, and poor record keeping.
“We are now carrying out further investigation in other firms of some of the issues we identified.”
The regulator notes that the retail banking sector has increasingly been selling complex investment products such as structured products.
The FSA says there is a risk that banks may encourage existing private banking clients to take more risk with their savings than is appropriate.
The FSA also sees a risk in banks inappropriately selling to affluent and mass affluent customers, either through up-selling into private banking, or by offering unsuitable wealth management products via their retail banking arm.
It says poor risk-profiling may have already resulted in some retail consumers taking on more risk than they are prepared to accept.