Thematic Review: Wealth Management and Suitability

The FCA has published its thematic review of wealth management firms and private banks and the suitability of investment portfolios (TR15/12).

This is not the first time the regulator has reviewed the suitability of client portfolios – the FSA expressed its concerns in a ‘Dear CEO’ letter in June 2011 and this was touched upon in a speech by Clive Adamson at the FSA Asset Management Conference in September 2012 (see Regulatory Roundup 31 and 44). The purpose of the thematic review was to determine whether asset management firms had acted on the previous concerns expressed.

The thematic review assessed 150 files from 15 firms, with follow-up visits to a number of them.

Some improvement was identified but there was also a wide variation in the performance of wealth management firms sampled and “many still need to raise their standards – in some cases substantially…”.

This is best illustrated by the finding that whilst one-third of firms sampled raised no substantial concerns, the remaining two-thirds either fell substantially short of expected standards or required some improvements. In terms of the 150 customer files reviewed, around 59% were either deemed to indicate a high risk of unsuitability or were unclear (as in insufficient information to make an assessment or where information presented was inconsistent or confusing). By way of comparison, the previous work undertaken indicated that 79% of files fell within the high risk/unclear category.

Customers’ risk appetite is a recurring theme and the review comments that in a significant number of firms, a customer’s attitude to risk was not recorded on the client file. In other cases, examples were found of customers who gave conflicting or inconsistent responses on their risk appetite and capacity for loss.

The publication makes it clear that:

• Firms should take note of the findings and ensure that they are able to demonstrate how the portfolios they manage are suitable
• Senior management are expected to consider whether any of the concerns raised are reflected in their own firms’ practices and to take any necessary action.

With the above in mind, Annex 2 of TR15/12 provides a table of ‘good’ and ‘poor’ practices found which wealth management firms may find of interest. Areas include effective monitoring, governance and controls and, of course, risk appetite and the matching of the customers’ portfolios.

HOW CAN WE HELP?

Complyport offers a complete range of services to wealth management firms. Our service provides you with independent guidance, ongoing support and the appropriate level of oversight to ensure your firm has the knowledge to maintain compliance and keep abreast of regulatory developments. Complyport does not simply provide pro forma documentation to wealth management firms and leave them to it, all service offerings are bespoke to your firm’s individual requirements.

When choosing Complyport, firms will benefit from:

Initial Assessment
Your firm will be appointed designated experts who will carry out an assessment. This involves a review of current arrangements, identifying gaps or areas where procedures may be improved. We will report our findings and help you build a framework that will meet regulatory requirements. If necessary, we can tailor all supporting manuals, policies and procedures. Alternatively, for firms that require less support, our service can be light touch.

ComplyTracker
As an option, ComplyTracker is our proprietary compliance management system designed to reduce the administrative burden that inevitably falls upon busy staff. The single system caters for firms in-house compliance needs and allows processes to be streamlined. Managed efficiently and simply accessed to demonstrate clear audit trails, the system reduces paperwork and provides a secure storage facility within a controlled compliance environment which reduces the chance of documentary loss or monitoring oversight.

Monitoring Programme
Complyport is well versed in implementing bespoke compliance monitoring programmes that fit with the regulatory obligations relevant to the firm. Whether a firm decides to complete their monitoring on ComplyTracker or use a paper-based monitoring programme, we will help you build a compliance monitoring programme that is appropriate to the nature and scale of your business. We can also provide an independent written assessment of your compliance with your monitoring programme and procedures and evidential records at a frequency agreed with you.

Expertise
Depending upon your own resources and expertise you may ask us to:

• Assist with liquidity, capital and other prudential obligations
• Review corporate governance and supervision arrangements
• Help with file reviews
• Provide registration and filing solutions
• Review your CASS procedures
• Review your TCF procedures
• Help with complaints monitoring or handling
• Review Anti-Money Laundering procedures
• Provide training support
• Review financial promotions
• Support with CRD IV obligations
• Provide a level of regular helpdesk support.

Consultancy
Our experts include lawyers, accountants, former regulators and advisers (chartered). Occasionally you may need specialist support to develop new business ideas or improve a particular aspect of your business or you may simply want an opinion on a complex matter of regulation. Firms can have access to our consultants and expertise on a retained, project or hourly basis as needed.