Wealth Management Sector under FCA scrutiny

FCA’s more intensive and intrusive approach to supervision was outlined in its Portfolio letter to wealth advisers and stockbrokers published on 8 November 2023.  The overall message was that firms needed to think more carefully about consumer outcomes and whether they were providing the services consumers really need at a fair value.  A second detailed annual survey was sent to firms in December for completion by early March.  This asked a range of questions about the business model and internal operations including revenue, products, remuneration, and staff turnover.

The FCA survey about charges for Ongoing Service, was sent out on 15th February. On 15th March FCA announced a review of firms’ treatment of consumers in vulnerable circumstances which will report by the end of this year. The FCA has been critical of the wealth advisory sector’s engagement in vulnerable consumer guidance.  On 19th March FCA published its Business Plan. This is the final year of its three-year strategy, and with a focus on how the Consumer Duty is embedding.

This has been quickly followed by the publication of the FCA’s thematic review about retirement income advice on 21st March, accompanied by a Dear CEO letter requesting firms to review how they provide this advice. The concurrent publication of a file assessment guide and cash modelling tool review help to give deeper insights into common issues FCA has identified.

FCA asks Financial Advisers to review their processes in retirement income support | FCA.  

The message follows up on previous communications from FCA about the need to improve retirement income advice to consumers, identify and support vulnerable consumers, and think about the complexity and value of products and services.

What are the practical steps firms can take?

• Complete a risk and control assessment against the points identified by FCA’s various communications and plan further analysis or actions to mitigate risks.
• In responding to requests for information from the FCA, take time to ensure responses are accurate and complete. Identify potential areas for follow up questions and identify actions that could be taken. For example:
• Consider whether existing MI or monitoring can identify where clients are misaligned to target markets or portfolios misaligned to clients’ objectives, needs and risk appetite.
• Review the framework for Fair Value assessments. The FCA has issued several communications highlighting good practice and areas for improvement.  A detailed level of analysis should look at costs of doing business, cost of future investment in, for example technology, price, and quantifiable consumer benefits, such as return.    
• For retirement income advice, review cash modelling tools against the FCA’s findings, as well as the standards of advice against the FCA’s file assessment guide.  Significant changes may require a plan to reassess existing client portfolios to check these remain on track to deliver retirement goals.
• Review how vulnerable consumers are identified and supported.  Look to other sectors and FCA’s good practice guides for different approaches to identification, support, and measurement.

If you require support or would like to discuss with any of these topics, please speak to Richard Barnwell Richard.barnwell@bdo.co.uk.

BDO UK LLP is the 5th largest tax, audit, and advisory firm in the UK. The BDO financial services advisory practice is a team of over 180 specialists, including ex-regulators and people who have held senior positions in regulated firms. This experience helps financial services clients to understand the impact of regulation and mitigate risk.