FCA warns wealth managers over consumer duty failings

Alex Sword


The Financial Services Forum

The Financial Conduct Authority (FCA) has warned wealth managers in an open letter that many are “failing to meet their obligations” under the consumer duty.

The letter is signed by Lucy Castledine, Director for Consumer Investments. It argues that while it expected firms to have implemented the Consumer Duty, which came into force at the end of July, many managers were falling short on communications and value.

In terms of communications, it particularly highlighted portfolio managers who have “taken advantage of their established relationships with clients to obscure the risks of unsuitable portfolios which are not aligned to their client’s risk profile.”

Castledine emphasised that communications must be “clear, fair and not misleading and you must take steps to test consumer understanding.” This includes having a clear focus on the needs and objectives of target markets to ensure products and services remain aligned to their needs, including reassessing the vulnerability status of customers.

It also includes ensuring customers fully understand all aspects of their investment products and services.

The other area that the FCA emphasised was price and value, ensuring that the amount paid for a product or service must be “reasonable relative to the benefits the retail customer can reasonably expect to receive”.

“We continue to see firms charging for services which are not delivered (such as ongoing advice), overtrading on portfolios to generate high transaction fees and providing a product or service which does not align with the needs of consumers (such as an expensive discretionary offering for a low-risk consumer).”

It added that it was concerned that firms were not providing clear disclosures on their fees or charging structures.

“In particular, we have seen firms charge high average fees and charge particular individuals very high fees. We will challenge firms to justify such high charges,” the letter said.

Castledine went on to say that firms needed to consider the value of their offerings, with many firms not passing on fair interest rates on client money balances, despite interest rates having risen. This also included not passing on revenue from securities lending where clients were being exposed to significant risk.

“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,” the letter 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.”

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