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FSA investigates wealth management firms

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.


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. It seems the FSA has concerns about everything, Wealth Mangers now, the financial strength of Networks earlier today. And yet the FSA happily sat back and let the banks screw up the economy and when it did highlight concerns over Keydata, allowed the company to continue trading.

    Does the FSA have anything constructive to say?

  2. And Barclays want an exemption for their HNW Wealth Management customers – not a chance if this is the FSA’s current thinking.

  3. The FSA attack on “risk” is probably going to affect returns considerably in the long run.

    Wonder how many of these clients complained when they made lots of money even it did not match their risk profile.

    Accept a lot of people probably don’t realize the risk some of the investments they make have but it does seem to me the FSA is trying to create a risk free society and we could all lose out long term if they do.

    Risk is not always easy to quantify even with the best will in the world and the more you explain it the more it will probably lead many to reduce the risk they will take which could lead to reduced returns than they expected and put more money into Gilts which I am sure the Treasury and Government will just love.

    Mind you if we get like Ireland Gilts could be very high risk.

    Funny how the ABI have today announced that the Cautious and Balanced fund labels will be replaced with a “mixed” label from April.

    Mixed of what one has to ask, “allsorts or tuti fruities” !?

  4. “FSA investigates the FSA,” FSA fines FSA £1.2 million,” and “Hector Sants is banned from holding any future office in the financial sector.”

    I guess we can dream! FSA are investigating and dishes out fines everywhere and anywhere, soon they will be left regulating itself.

  5. Wealth Management Firms are not perfect! Whoopee, more victims for the FSA to fine to increase that bonus level.
    Isn’t it curious how fetishistic the FSA are about risk, and how puritanical they are at applying risk management.
    But nowhere do they define risk. Nowhere do they state how they measure risk. Nowhere do they indicate how to normalise perceived risk, so that there is a common benchmark. Nowhere do they define what are acceptable levels of risk and what are unacceptable levels of risk.
    Even the latest output from the FSA “Assessing suitability” gives no positive guidelines. There is no guidance on how to correlate client perception of risk with actual structures – not even vague hints.
    The whole ethic of the FSA is to criticise and to make money on that criticism. Providing guidance may well have the adverse effect of allowing businesses to structure themselves to mitigate the possibility of fines. Then how would the FSA finance their nice standard of living?
    How much of the FSA ‘guidance” has arisen after the event? And how much of that “guidance” can actually be implemented in a clear and unambiguous manner, such that “the carrying on of an activity should be proportionate to the benefits”[FSMA 2000 S2(3)(c)]?
    And just what benefits have arisen from FSA intervention since its inception in 2000. Hector Sants stated that objectives set forth in the a recent FSA Report had been achieved. I went through that report and there is no part of the report that explicitly and clearly states any objectives. So again the FSA get away with living in fairy land.
    I have no idea how good or bad Wealth Management Firms are in meeting FSA requirements. I am reasonably certain that after the FSA have undertaken their investigations, imposed fines, and produced a report, I will have exactly the same level of knowledge.

  6. Incredible comments once again from the really smart company, who have only ever commented after the fact on every occasion! Really clever that and to make out that banks and wealth managers are contrived and use misleading information deliberately is surely libellous? Rather than being the centre of all that is negative, they are showing everyone that they don’t wish to regulate in a positive way, but one that is purely punitive and the only consumer outcome to this will be a negative one as they become even more confused with the new terms and categories being Invented by every man and his dog!
    God help our industry!!!!!

  7. Incompetent Regulators Awards Team 28th February 2011 at 2:20 pm

    The words ‘Wealth Managers” is purely bullsh*t. All IFAs are wealth managers in a rising stock market. What happens in a falling market such as 2008? Should they be valled “Wealth Losers?” The new euphemism is pure management speak to big themselves up.

    Let’s all go back to the old term “life assurance salesman”.

  8. If the FSA had been regulating things under the last Queen Elizabeth we would all be speaking Spanish now! They haven`t a clue!

  9. after t baby was thrown out with the bath water, the fsa begins a search4 “culprits or crumbs” to regulate out of existence. wd b very good if senor sants was barred from any(!)financial job 4 t nxt 8 yrs, til the storms blow over.and perhaps use his salary/ pension contribs might b donated towards a jobseekers funding/foundation.
    wishful thinking on a grey monday…

  10. Sants should’nt be in charge of a car, his vision is clearly impaired.

    The IFA is dead, Long live the IFA.

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