One third of wealth management firms are failing to recommend suitable investment portfolios to their clients according to the Financial Conduct Authority (FCA). A thematic review by the regulator found improvement in practice since the previous review in 2012. However, the regulator says it is concerned that some firms have still failed to take steps to identify and correct problems.
Some firms’ recommendations are not matched to their clients’ financial situation, risk profile and investment objectives. One firm with elderly customers, including one over 90 years’ old, documented the clients as having a medium risk appetite and 20-year investment horizon. The regulator is considering enforcement action against firms which fell substantially short of the required standard.
“It is positive that a number of firms have taken steps to improve and demonstrate the suitability of their clients’ investment portfolios,” said Megan Butler, FCA director of supervision. “We are concerned, however, that some do not appear to have heeded the messages we have put out in recent years. Getting suitability right is fundamental to providing a portfolio management service that meets customers’ needs.”
The findings will make it harder for some firms to secure professional indemnity insurance, believes James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “Insurers are selective about the firms they will insure. Any practice which has a record of regulatory failings will find it difficult to find insurance. Providing top quality advice, backed up by accurate individual records, is the key to success. We help all our clients with risk management advice and work hard to understand their practice in order to properly present it to insurers.”