FCA warns wealth managers to justify high fees

The FCA has issued a strong warning to wealth managers and stockbrokers warning it will become more “assertive, intrusive and data driven” to enforce consumer duty rules. 

In a letter to bosses, the regulator said it will be conducting more unannounced visits after finding many firms have not met the obligations of consumer duty. 

The letter highlighted that the FCA has seen evidence of firms charging for services that have not been delivered, such as for ongoing advice. 

It has also seen firms overtrading on portfolios to generate high transaction fees, not in line with the needs of the consumer. 

In the letter, director of consumer investments Lucy Castledine, wrote: “We are also concerned that firms are not consistently providing clear disclosures on their fees or charging structures.

“As a result, consumers can be unaware of high fees that significantly reduce their investment returns.

“In particular, we have seen firms charge high average fees and charge particular individuals very high fees. We will challenge firms to justify such high charges.”

Our supervision is shifting to become more assertive, intrusive, proactive and data driven.

The FCA

In response to this, the FCA has told firms to regularly assess the overall cost and value for money of products and services and make changes if poor value is found. 

With 1.8mn portfolios and 14.3mn stockbroking accounts, the FCA said wealth management and stockbroking is one of the higher risk sectors. 

The watchdog said it has seen failings in the sector including examples of portfolio managers who have taken advantage of relationships with clients to “obscure the risks of unsuitable portfolios” and execution-only stockbrokers promoting products which are too complex to understand. 

Consumer duty was introduced by the FCA three months ago and sets higher standards on the outcomes for clients across financial services.

Castledine said: “While our supervision will remain holistic of all harms, we are particularly focused on ensuring you prevent financial crime and meet your consumer duty outcomes.

“Our supervision is shifting to become more assertive, intrusive, proactive and data driven.

“We are conducting more short notice and unannounced visits where we deem it appropriate. And we are significantly increasing the use of our formal intervention powers for the worst cases.”

The letter concluded: “These are strong messages precisely because firms in this sector have an important role to play, given the trust that they are afforded by consumers to grow and look after their investments and support them through key life events.

“We know that many firms strive to achieve and succeed in promoting good consumer outcomes.

“We also know that the harm caused by bad actors in this sector unfairly tarnish the reputation of all. So we want to work with you to pursue bad actors and poor practices, which in turn will benefit consumers, raise standards and help good firms prosper.”

tara.o'connor@ft.com

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