The Financial Conduct Authority (FCA) has warned some wealth managers and stockbrokers represent “poor value” with high fees, overly complex and sometimes inappropriate products and services – and promised to take “targeted, intrusive and assertive” action against those facilitating financial crime.
In a ‘Dear CEO’ letter published on 8 November, the UK’s financial watchdog said it continues to see firms charging for services which are not delivered – such as ongoing advice – generating high transaction fees by overtrading on portfolios and providing products and services not aligned with consumers’ needs including expensive discretionary offerings for low-risk clients.
The FCA warned firms do not consistently provide clear disclosure of fees or charging structures, meaning clients are not aware of the fees eroding their returns.
It added some firms charge “particular individuals very high fees” and it would “challenge firms to justify such high charges”.
The regulator also said “too many” firms are not considering all revenue streams from consumers across the value chain and are not passing on fair interest on client money balances, even after interest rates increases.
In fact, the FCA warmed some charge a fee for holding uninvested funds, which can further erode investor returns.
It noted it is unclear whether clients are rewarded fairly when exposed to risk such as being provided a fair share of revenue from securities lending activities.
The FCA said the scale of consumer exposure to these issues is significant, with 1.8 million portfolios and 14.3 million stockbroking accounts within its jurisdiction.
“Unfortunately, we have seen many wealth managers and stockbrokers failing to meet their obligations to provide a service that delivers good consumer outcomes,” it said.
The regulator said wealth managers and stockbrokers are entrusted with client assets accumulated “through decades of prudent investment and hard work”, yet “many firms undermine this trust” or “have taken advantage of their established relationships” to push products or services that are unsuitable for most consumers.
It also called on the sector to ensure they do not expose clients to scams or fraud, facilitate money laundering and embed Consumer Duty into “the day-to-day culture and running” of wealth and brokerage firms.
“We will consider in future engagement whether you have taken appropriate action to rectify the root cause of any issues, which is often poor and ineffective leadership, governance, systems and controls and conflicts of interest management. We will take action if you have not,” the FCA warned.
“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.”
The letter comes within weeks of the UK’s largest wealth manager, St. James’s Place, announcing the largest overhaul of its fee structure in its 33-year history, including an “unbundling” of its component parts, removing penalties on withdrawals before six years and the end of the six-year waiver on management fees.
However, the legacy segregated mandate operator will not implement the new fees until H2 2025, with exit fees applicable to all existing SJP customers, the ongoing advice fee being raised from 0.5% to 0.8% and the manager’s lofty 4.5% entry fee remaining in force.