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FSA warns of poor conduct in private banking and wealth management

The FSA has highlighted concerns over “poor firm conduct” in private banking and wealth management.

In its Retail Risk Conduct Outlook, published today, the regulator highlighted private banking and wealth management as an “emerging risk”, warning that poor conduct could lead to “widespread detriment”.

The regulator is concerned that increasingly complex products are being sold to clients and highlights its recent thematic review of the wealth management sector “which revealed evidence of misconduct, giving rise to potential consumer detriment”.

It adds: “In particular, the results indicate that many firms do not gather or maintain adequate client information to demonstrate suitability, and that even where the information is available, there is a significant risk that consumers have unsuitable portfolios.”

The regulator says it has communicated risks through a a ’Dear CEO’ letter and was engaging with regulated firms, consultancies and trade bodies to improve standards.

It adds: “While some firms appear to have taken steps to improve record keeping and suitability, further work is needed to ensure change throughout the industry.”

It warns: “Private banking clients expect to receive a bespoke service and access to a wider range of products, many of which are complex.

“This is exacerbated by the current low interest rate environment, which leads to strong incentives for firms to sell retail investors products that target higher levels of return without adequately understanding or disclosing the risks.”

The regulator adds: “Banks may sell complex or illiquid products that encourage existing private banking clients to take inappropriate risks with their savings. There is a risk that relationship managers with aggressive sales incentives may be more inclined to highlight benefits and downplay risks of the products they sell.

“Banks inappropriately sell wealth management products to Affluent and Mass Affluent consumers, either by up-selling them into private banking or by offering them via their retail banking arm. Poor risk profiling may have already resulted in the up-risking of some retail consumers.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Does any good news ever come out of the FSA?

  2. “There is a risk that relationship managers with aggressive sales incentives may be more inclined to highlight benefits and downplay risks of the products they sell.”

    Surely this has been the case since the beginning of mankind – have the FSA only worked this out now?

  3. Lindsay Bateman 13th March 2012 at 3:47 pm

    Selling overly complex products to individual investors based on product literature that is incomplete , misleading and/or inaccurate, in an environment aggressively focussed on revenue generation and sales targets is a disaster waiting to happen – as it has already… PPI, Lehman’s backed structured products etc etc.. Regulators have to toughen up internationally – both in terms of restitution for those investors still struggling to get their “100% capital guaranteed” funds repaid – and to avoid these disasters in the future – which causes immense damage across the financial services industry, and destroys trust – the bedrock of the banking system..

  4. As an ex-bank adviser I can well remember the pressure we were under to steer clients with large cash deposits into investment products. ‘Capital Guaranteed’ was a major draw to these customers however I estimated that about 50% of sales only produced the original capital after 5.5 years; in real terms customers lost money. Many customers had an unwarranted trust in banks and some woud blindly sign up to anything. I hope RDR puts an end this but I doubt it.

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