The Financial Conduct Authority warned wealth managers yesterday that it would look to take a more “intrusive and assertive” approach to supervising the sector if they aren’t able to justify their high fees.
The regulator warned that it would intervene to take action against the worst cases as it looks to enforce new consumer duty regulations.
The new principle aims to ensure firms deliver good outcomes for consumers on the quality and price of products and services, and make sure a higher standard of consumer support is provided.
Lucy Castledine, the FCA’s director for consumer investments, said that firms in the sector had lost consumers “significant sums” to scams and fraud and exposed them to “inappropriately high-risk” or complex investments.
“We have seen many wealth managers and stockbrokers failing to meet their obligations to provide a service that delivers good consumer outcomes…Your firms are often entrusted with wealth acquired through decades of prudent investment and hard work. Yet many firms undermine this trust by pushing products or services that are too high-risk and/or too complex for most consumers,” Castledine’s Dear CEO letter read.
The regulator explained that it expects firms to have a much clearer focus on the needs and objectives of their target market and reassess the vulnerability needs of clients.
It noted that 49 per cent of portfolio managers and 69 per cent of stockbrokers in a wealth data survey identified no vulnerable consumers, despite 50 per cent of people being classified as vulnerable over their lifetime.
The letter also criticised firms for not consistently providing clear disclosures on their fees and challenged them to “justify” their fees and regularly assess the costs and values of the products and services they offer to consumers.
“These are strong messages precisely because firms in this sector have an important role to play, given the trust that they are afforded by consumers to grow and look after their investments and support them through key life events,” Castledine said.
“We know that many firms strive to achieve and succeed in promoting good consumer outcomes. We also know that the harm caused by bad actors in this sector unfairly tarnish the reputation of all. So we want to work with you to pursue bad actors and poor practices, which in turn will benefit consumers, raise standards and help good firms prosper.”