There were some interesting issues and proposed focus raised by the FCA in its annual Business Plan for 2018/19 under the ‘Retail Investment’ heading. Some, such as the Financial Advice Market Review and the Investment Platforms Market Study were predictable, given they are ongoing and clearly relevant to the sector. In a relatively short list, perhaps less predictable was ‘High-risk and complex investments’.
The FCA has rightly never allowed the pressure on suitability to drop and thematic reviews over the years, including recently, are a demonstration of this. Having acknowledged the general uptick in quality of advice, it would appear the FCA is now concentrating on specific areas, and this may prove easier for them to carry out targeted reviews of firms. Making a general point, the FCA has said: “Advisers must be appropriately incentivised when recommending products to their customers, and the distribution chain should be free from conflicts of interest. This is increasingly important as, following the introduction of the pension freedoms, many consumers now face complex financial choices.”
Good deeds of today may come back to haunt tomorrow
It has helpfully tried to define what it means by high-risk investments, being those that are characterised by unusual, speculative or complex product structures, investment strategies or terms or features. Some of these may be obvious but others, perhaps some structured products, may not be immediately. As clients continue to chase returns and income, and wealth managers attempt to satisfy them, the temptation for these to creep in to portfolios is increased and firms would do well to be alert to this possibility – the good deeds of today may come back to haunt tomorrow.
What’s clearly stated is that the FCA will be carrying out a programme of work, targeting those firms distributing (or in the case of new firms, intending to distribute) these products to their clients. There is no indication of how the FCA will identify these firms but it’s likely they will do some data-gathering thematic work and follow up with those outside an expected benchmark. Firms may well wish to ask themselves whether the increased regulatory attention is worth the risk to both clients and themselves.
Views expressed in this article are those of the author alone and do not necessarily represent the views of the CISI.