The recent Financial Services Authority (FSA) review of the suitability of client portfolios with wealth management industry firms, reminds us of the FSA requirements for the fair and effective treatment of clients within the industry.
Recent communication from the FSA to the firms reminds them of five key principles:
- That a firm must conduct its business with integrity
- That the firm must conduct its business with due skill, care and diligence
- That in management and control, a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems
- That in relation to customers’ interests, a firm must pay due regard to the interests of its customers and treat them fairly
- That through relationships with customers based on trust, a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment
To address these principles, a number of required operational procedures are required by the FSA, to be put in place:
- to gain basic know-your-customer (KYC) information, which is up to date, with effective risk-profiling and records of the clients’ financial situation (assets, source and extent of income, financial commitments), client knowledge, experience and understanding of investment objectives
- to implement MiFID ( Markets in Financial Instrument Directive/EU) client categorisation requirements
- to minimise inconsistencies between portfolios and the client’s attitude to risk; between portfolios and the client’s investment objective, investment horizon and/or agreed mandate
- to ensure that there is reasonable care to organise and control their interactions with clients responsibly and effectively, using adequate risk-management systems.
The overall message for wealth managers is that they need to make sure that they are compliant with suitability and are maintaining good records. They need to make sure that they have the right controls and risk management systems and that they are fully compliant with FSA requirements.
If you want to find out more, contact one of the team who will be happy to help or forward this eNewsletter to a friend who may benefit from our services.