The regulator said that some firms need to make substantial improvements in client information practices as well as ensuring the portfolios they manage truly reflect the needs and risk appetite of their customers.
Among the firms sampled, a third fell substantially short of expected standards, a third need to make some improvements, and a third raised no substantial concerns.
Of the 150 customer files reviewed across all firms, 34 (23%) indicate a high risk of unsuitability, 55 (37%) are unclear and 61 (41%) show a low risk of unsuitability.
Five firms may now be required to undertake significant remediation programmes to raise standards and ensure that they can consistently demonstrate the suitability of clients’ investment portfolios in future. Some of these exercises may involve the FCA using regulatory and enforcement investigation powers.
Key issues identified included an inability to demonstrate suitability, for example because of absence of up-to-date customer information, inadequate risk profiling, or failure to record customers’ financial position and/or their investment knowledge and experience.
Overall, the results show some improvement in the market, when compared to the FCA's work on suitability in 2010, with the proportion of high risk or unclear files falling from 79% to 59%. However, there was a wide variation in the performance of individual firms.
The FCA said that 'there is clearly a need for further improvement by many firms, as there are still too many cases where suitability cannot be demonstrated or there is a high risk of unsuitability'.
Megan Butler, FCA director of supervision, investment, wholesale and specialists, said:
“The UK wealth management industry plays a vital role in delivering financial services. It is positive that a number of firms have taken steps to improve and demonstrate the suitability of their clients’ investment portfolios. We are concerned, however, that some do not appear to have heeded the messages we have put out in recent years, and taken steps to identify and correct problems we’ve previously identified. Getting suitability right is fundamental to providing a portfolio management service that meets customers’ needs.”
