Surveys

FCA Unveils Conflict Of Interest Wealth Review

Stephen Little, Reporter, London, 25 November 2014

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The UK Financial Conduct Authority has completed a review into conflicts of interest arising from wealth management and private banking firms’ use of in-house investment products.

The UK's Financial Conduct Authority has completed a review into conflicts of interest arising from wealth management and private banking firms’ use of in-house investment products (IHPs) in retail discretionary and advisory investment portfolios.

The review was based on a sample of 18 wealth managers and private banks and the regulator also engaged with both the Wealth Management Association and the British Bankers Association to obtain their views on the methodology used.

The FCA said that there were a number shortcomings and lack of consistency in several areas.

The regulator found that firms did not articulate clearly enough how IHPs fitted within their business model and strategy, and were aligned with customers’ interests.

It also said that not all firms monitored the level of IHPs in customer portfolios, which could help to indicate how effectively they are managing conflicts.

In addition, communications with customers were not always clear about the nature of the firm’s services and the extent to which IHPs might feature in customer portfolios.

However, the FCA found “no evidence” of remuneration structures that could have biased investment decisions unfairly towards IHPs.

Due diligence processes in selecting investment products and monitoring their subsequent performance appeared to be consistent between IHPs and third party products, while senior management had focused on conflicts of interest in relation to IHPs, taking steps to identify and manage weaknesses in their controls, the FCA said.

“Firms were generally clear about the relationship between the distributor and product manufacturer and, in some instances, clearly articulated their preference for using IHPs where possible. However, in reviewing customer communications in a number of firms, we found a lack of clarity in how firms disclosed the nature of the services they provided. We saw terms within customer communications which could be unclear or confusing. It was unclear whether firms had considered, when describing the nature of the services, if their customers were likely to understand the terms used,” the report said.

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