The UK financial watchdog has threatened to be "more assertive, intrusive, proactive" in its supervision of wealth managers and stockbrokers, and said charging structures in the sector remain too high and unclear.
In a 'Dear CEO' letter published on Wednesday, the Financial Conduct Authority (FCA) warned that this will include more visits at short notice or unannounced and "significantly increasing the use of our formal intervention powers for the worst cases".
Consumer investment director Lucy Castledine, under whose name the letter is signed, said while these firms are entrusted with wealth acquired through decades of prudent investment and hard work, "many firms undermine this trust by pushing products or services that are too high-risk and/or too complex for most consumers".
The FCA has seen portfolio managers taking advantage of established relationships with clients "to obscure the risks of unsuitable portfolios which are not aligned to their client’s risk profile", while execution-only stockbrokers have promoted products that are "too complex to understand", with some ‘overtrading’ on portfolios that generated high transaction fees not aligned to the real needs of consumers.
On pricing models, the regulator expressed concern that there is still a shortage of clear disclosures on fees and charging structures, which is obscuring for consumers how much their investment returns are being reduced.
"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," the letter said.
There has been some high-profile regulatory scrutiny for some firms in recent months, with St James’s Place (SJP), the UK’s largest wealth manager, pressured to ensure its fee structure complies with new consumer duty rules being introduced by the FCA with the aim of ensuring UK companies act in the best interests of customers.
SJP last month said it will change how it charges customers for investment bonds and pensions, which will cost it £140-160 million before tax, reduce profit margin from mature funds under management and drag on underlying cash levels for "the next few years".