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FCA frustrated by shortcomings in wealth management sector but must accept subtleties of suitability

Published on 09 December 2015

Final warning from the FCA

The FCA wants all firms providing portfolio management services to retail customers to review its findings, consider whether any issues apply to their business, and take action where necessary.


Says Robbie Constance, Partner of City law firm RPC: “This is clearly a final warning from the FCA.”


The FCA's thematic review report published today expresses concern about some wealth management firms who are still not getting suitability right despite five years of regulatory 'communications'.  The improvement observed has clearly not impressed the FCA – the proportion of files reviewed found to be 'high risk' or 'unclear' has only dropped from 79% (in 2010/12) to 59%.


Robbie Constance explains that suitability is, by definition, a client-specific and fact-sensitive issue and that in reality the wealth management industry’s knowledge of its customers’ risk appetite is much greater than the FCA gives them credit for.


Says Robbie Constance: “Whilst wealth managers might not have all the detailed paperwork on suitability that the FCA would want them to have, the incidence of unsuitable investments is actually remarkably low.”


“Firms may have had to repaper client files in order to demonstrate in their records that they 'know their clients' but the essence of wealth management is a bespoke professional relationship, providing an ongoing service to higher net worth, more sophisticated clients.”


Robbie Constance points out that when JP Morgan International Bank was fined for systems and controls failings relating to suitability, the Final Notice had to acknowledge that "having reviewed 1,416 client relationships..., the past business review… identified only one case in which there was an unsuitable investment."


Says Robbie: “Knowing your client is taken as a given; documenting it is still seen by some as tick-box compliance.”


“The continuing challenge for firms is to ensure ongoing suitability, particularly for smaller clients.  The FCA says "firms need to ensure that their governance, monitoring and assessment arrangements are sufficient to meet their regulatory responsibilities in relation to suitability.”