It’s already been well documented that the FCA’s latest ‘Dear CEO’ letter sent to wealth managers towards the end of last year marked a shift in tone for the regulator.
In fact, the FCA stated in the letter that it will be ‘more assertive, intrusive and proactive’ to make sure industry standards are upheld in the new Consumer Duty landscape.
While the letter’s tone was direct as the regulator called out its areas of concern, the underlying message was also clear – under the Consumer Duty, doing the right thing for consumers really matters.
Doing the right thing for our clients, day in and day out, and delivering good outcomes for them is our team’s key focus before anything else. And I know that the reason why the FCA introduced the Consumer Duty was to support a cultural shift across all industry sectors to ensure those good outcomes are delivered.
So, following the ‘Dear CEO’ letter, and when deciding the wealth managers they want to entrust their clients’ savings with, advisers should carefully consider a firm’s culture in addition to its risk and governance controls as part of the due diligence process.
The FCA’s letter to wealth managers has been welcomed
The FCA’s latest ‘Dear CEO’ letter may have been direct, but it doesn’t change the fact that I know most wealth management firms are focused on good outcomes and deliver good propositions.
Our business, for example, offers a compelling choice of competitively priced investment opportunities, which our team continually monitor and rebalance to provide consistent, risk adjusted, good outcomes for clients.
Most wealth managers therefore, our team included, have welcomed the regulator’s letter and its straight-talking approach – and the follow-up data-gathering questionnaire – in a bid to raise standards in the sector.
For me too, the order in which the letter highlights the FCA’s concerns is telling. As the regulator sees it, the priority potential harms to consumers are poor financial crime controls followed by, under Consumer Duty obligations, inappropriate high-risk investments and poor value products and services.
It’s not a complete list, as the FCA says, but these are the key areas where advisers should focus their due diligence and seek assurance from their chosen wealth management firms that they’ve the risk and governance controls in place.
As a team, we have the support of the global abrdn business and, although we’re well aware having good risk and governance controls in place is an evolving journey, we work within abrdn plc’s risk and governance controls framework at an institutional level.
Moreover, we’ve a dedicated Consumer Duty champion on our Board, and our investment managers constantly anticipate and monitor economic conditions and market events, responding swiftly to changes in the market.
The FCA is serious about driving a cultural shift
While the regulator, in its ‘Dear CEO’ letter, asks wealth managers to understand the level of exposure their firm has to the risks and harms highlighted and to invest time and energy in managing them as our team does, it also makes clear it considers part of the root cause of the issues to be ‘poor leadership’ and as I see it, it’s an indicator that within some firms, issues may need to be addressed at a cultural level.
I’m really proud that since we launched our abrdn MPS solution in 2014, three of our team of now five investment professionals are still at the helm and the combined experience of our entire team, including our business development managers is extensive.
One other interesting point is that, under the FCA’s wider expectations, as set out in the letter, it mentions that there’s ‘no place for non-financial misconduct’ within firms and points to its recently published Diversity and Inclusion Consultation Paper which contains proposed new rules and guidance in this area which we as a business welcome.
Good leadership, good reputation and customer loyalty
With its ‘Dear CEO’ letter to wealth managers, the regulator is making it really clear that it’s serious about driving a cultural shift across the industry to do the right thing now that the Consumer Duty is here - and it will take action where it finds a firm is not meeting the standards it expects.
And as the Consumer Duty is principles based, I know from experience that embedding it in a business must come from the top. Because to be able to deliver good outcomes, all colleagues need to be engaged and motivated to do the right thing.
Where wealth management firms are doing the right thing as we will continue to do at aPSL, and where the consumer comes first, any business benefits from a good reputation and customer loyalty.
To me, this is probably the most useful guide advisers can follow when carrying out their due diligence on a wealth management firm.
abrdn Portfolio Solutions Limited (aPSL) offers a range of portfolio strategies for adviser firms, with a choice of management styles and risk levels to meet clients’ investment needs. To find out more, go here.
The value of investments can go down as well as up and your clients could get back less than they paid in.
The views expressed in this blog should not be regarded as financial advice.