Is Your Wealth Manager Failing You?

Is Your Wealth Manager Failing You?
Southern Red Sea by Julian Cohen. Why?

If you have an adviser, a wealth manager or someone else looking after your investments, read this damning news from the regulator

Your Wealth Manager Could Be Putting You At Risk

The FCA’s Revealing Insights On Wealth Manager Firms

wealth manager
In a recent thematic review, the Financial Conduct Authority has highlighted some serious concerns regarding wealth manager firms.  It’s unearthed some questionable practices around high portfolio turnover, conflicts of interest and most worryingly, significant suitability failings.

The regulator concluded that some wealth manager firms are putting their clients at risk.

Incredibly, two-thirds of firms in the review are falling short of the FCA’s expectations. 

One third of them may be required to undertake significant remedial action to raise their standards.

At the heart of the review, the regulator consistently found poor record keeping and poor suitability checking.

Wealth Manager Issues

In one particular case, the wealth manager had a portfolio turnover of 196 per cent, with the firm earning revenues on the switches.  The FCA said: “it’s unclear why the frequency of transactions was necessary and whether these were executed in the best interests of customers”.

To put this in context, the FCA cited a wealth manager where annual portfolio turnover was just 35 per cent and where conflicts of interest were properly managed.  Transaction charges were not billed to the client and any commissions earned from third parties were rebated to the clients’ accounts.

The lack of transparency on cost and charges was a recurring theme across a number of the wealth manager firms.  The FCA reported that some quoted upfront fees and charges, but didn’t summarise the total costs levied saying: “Numerous transaction charges were detailed individually within the acquisitions and disposals section of the periodic report, but were not aggregated and stated as a total figure.  As a result, the total amount of fees and charges did not appear clear, fair and not misleading.”

Another particularly appalling situation involved a firm with elderly clients.  One person was more than 90 years old, who had been assessed by the wealth manager to have a medium risk appetite and a 20 year investment horizon! 

Inadequate risk profiling of customers was identified in several wealth manager firms.  One firm recorded hardly any detailed information, with no updating having been done for almost five years.

Examples Of Wealth Manager Poor Practice

A client’s attitude to risk was low-medium, which was difficult to reconcile with a portfolio containing over 90 per cent equities and in the absence of any agreed investment strategy with the client.

It was recorded on the wealth manager’s file that one client had an aggressive attitude to risk, with no explanation whatsoever as to why he had a high proportion of cash holdings.

In a far more worrying situation, another wealth manager had changed clients’ attitude to risk appetites to match the risk profiles of their existing portfolios.

What To Do If You Have A Wealth Manager

Whilst the FCA has uncovered some shocking practice, in general it believes things are getting better.  Without doubt, there are clearly some very good wealth manager firms providing excellent service. 

But it does go to show that just because a wealth manager is regulated, it’s no guarantee you’re certain to receive a top quality service.

It’s well worth reading the wealth manager review for yourself, especially the regulator’s examples of good practice and poor practice shown from page 16 onwards.  If it brings to mind any issues of concern with you, then it would do you no harm to ask your wealth manager to comment.  After all, if you’re paying a fee, it’s only right you get value for your money.  And that is entirely in line with the FCA’s requirement that wealth manager firms ‘treat customers fairly’.

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