Poor record keeping and exposing clients to higher risk levels are some of the failings that have prompted the FSA to launch an investigation into the conduct of wealth management firms.
The FSA has found poor practices by independent wealth managers and wealth management units of banks, it said in its Retail Conduct Risk Outlook report, published today.
“We carried out some analysis on wealth management activities in a number of firms (including several independent wealth managers that are not subsidiaries of banks), which identified poor practices, including increasing clients’ risk levels, unwarranted use of complex, illiquid, high-cost products, the use of convenient statistical data that understates particular risks, and poor record keeping”, the report said.
The regulator has widened the scope of the investigation, it said. “We are now carrying out further investigation in other firms of some of the issues we identified”, the report said.
The FSA has found out that retail banking units are increasingly selling complex structured products unsuitable for the retail investor. There is a possibility that banks will encourage private banking clients to take more risk than appropriate, the FSA report observed.
The banks are already selling unsuitable wealth management products to mass affluent and affluent customers, through their retail banking arms. Inadequate risk profiling by banks may have pushed clients to take more risks than they are prepared to take, the report observed.