By Marcus Leach
The Financial Services Authority (FSA) has found evidence to suggest 'wealth management' companies may be exposing their clients to too much risk.
A number of firms have been warned that they are failing to invest their customer's money properly, with the FSA warning them to ensure client investment portfolios are suitable.
260 firms have been contacted by the FSA after the recent review concluded that there are 'significant, widespread failings'.
"We have recently reviewed the suitability of client portfolios in a sample of firms in the wealth management industry," the FSA said in a letter to the chief executives of the registered firms.
"We have identified significant, widespread failings, which we are concerned may also be prevalent in firms outside our sample."
There is a mix of firms, ranging from independent businesses to divisions of leading banks, and the letter comes as a stark warning to the industry as a whole to tow the line.
The FSA looked at a selection of 16 firms to see if the clients' investment portfolios had been managed in line with their "knowledge and experience, financial situation and investment objectives".
The review of records at 16 firms found that:
- 14 had exposed their customers to high, or medium-high, risk of loss, because of unsuitable investments, or investments whose suitability it was not possible to judge.
- of the client files examined, 79% had a "high risk of unsuitability", or the suitability could not be decided.
- of the files examined, 67% of the investments were not in line with either the firm's own investment model, the client's willingness to accept risky investments, or the client's own investment aims.
All firms that have come under investigation are being followed up by the FSA, with several already implementing plans to bring their clients' portfolios back in line.
The main concern the FSA has is that there is evidence of poor record keeping at many firms, meaning there is a lack of basic lient information, or even personal financial situations of clients.
"These findings give rise to concerns that there is an unacceptable risk of customers of wealth management firms experiencing unfavourable outcomes," the FSA said.
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