Yahoo Finance Investors routinely ripped off by wealth managers, says FCA
Investors are being routinely ripped off by wealth managers and stockbrokers, the City watchdog has warned.
In the letter sent to City bosses on Tuesday, seen by The Telegraph, the Financial Conduct Authority’s (FCA) director of consumer investments, Lucy Castledine, accused some companies of exposing consumers to inappropriate or complex investments and providing them with “poor value products and services”.
The regulator found some investment managers were “taking advantage” of their established relationships with customers by pushing unsuitable portfolios on them and failing to clearly explain charges.
It added some investment firms had been charging consumers for services that are not delivered, such as ongoing financial advice, and overtrading on portfolios to generate high transaction fees.
It comes after Britain’s biggest wealth manager, St James’s Place, scrapped its controversial exit fees for new customers in the face of FCA pressure last month.
At the time the company said the decision would “better enable potential clients to review and compare our charges”.
The intervention came four months after the introduction of “Consumer Duty” rules, which set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.
The wealth manager has been under pressure from claims management firms, pursuing complaints from clients who alleged having gone years without seeing their adviser yet still paying ongoing fees.
AMK Legal, a claims firm, says it has recovered £3.43m for clients of St James’s Place so far this year, in many cases because of a lack of review meetings between adviser and client. St James’s Place has said it offers compensation to customers on a case-by-case basis.
Ms Castledine said: “Unfortunately, we have seen many wealth managers and stockbrokers failing to meet their obligations to provide a service that delivers good consumer outcomes.
“We have seen firms charge high average fees and charge particular individuals very high fees. We will challenge firms to justify such high charges.
“It is also often unclear that consumers are being rewarded fairly when they are exposed to risk. For example, many firms are not providing a fair share of revenue from securities lending, despite exposing consumers to risks.”
The FCA also accused some investment firms of laundering money through “greed or incompetence”, while it said others “squander or even steal the assets of clients through frauds and scams”.
It added companies were not doing enough to protect customers from fraud.
The letter warned chief executives that regulator supervision will become more “targeted, intrusive and assertive”, with the watchdog’s new financial fraud unit already targeting firms at short notice with unannounced visits.
Investment firm bosses now need to take “appropriate action to rectify the root cause of any issues”, Ms Castledine said. She added that compliance and fraud issues the regulator found are often the fault of “ineffective and conflicted leadership and governance” combined with “ineffective systems and controls”.
“This is an inherently high-risk sector for enabling and/or participating in financial crime.”
She added: “Both aspects of financial crime have damaging impacts on consumers, markets, and wider society, whilst harming the reputation and long-term profitability of the industry.
“Worse, they can have more sinister roots in human trafficking, terrorism, and child exploitation.
“You and your leadership team should fully understand the level of exposure your firm has to the risks and harms set out in this letter and invest significant time and energy – and, if necessary, capital – to manage them.”
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