Wealth Management Firms under FSA Spotlight

The Financial Services Authority, the UK regulator, is to carry out investigations into some wealth management firms in the light of analysis that found "poor practices" and an increase in clients' risk, according to a report it published called the Retail Conduct Risk Outlook.

The FSA found poor practices after analysing wealth management activities of banks' wealth management arms and independent wealth managers.

The report noted several potential risks in the wealth management industry: banks may encourage existing private banking clients to take more risk with their savings and investments than is wanted or appropriate through the sale of complex or illiquid products; relationship managers with aggressive sales incentives may be more inclined to highlight benefits and downplay the risks of the products they are trying to sell; banks inappropriately sell to affluent and mass affluent customers by up-selling them into private banking; unsuitable products for the customer's circumstances; and poor risk profiling.

"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," said the FSA.

The FSA continues, "We are now carrying out further investigation in other firms of some of the issues we identified."

Added 22/02/2011.