The Financial Services Authority (FSA) has expressed concerns about the quality of advice around firms' use of 'centralised' investment solutions after a thematic review flagged widespread failings at some firms.
Publishing guidance consultation today on centralised investment propositions (CIP) and replacement business, the regulator said it had uncovered examples of poor advice and disclosure after assessing more than 180 files at 17 firms.
It said, overall, it found the quality of advice to be unsuitable in 33 cases and unclear in 103 cases.
It added it found the quality of disclosure to be unacceptable in 108 cases.
The FSA identified a CIP as a "standardised approach" to providing investment advice including portfolio advice services, distributor influenced funds and discretionary fund management.
Examples of poor practice included customers being "shoe-horned" into an unsuitable one-size-fits-all solution, and clients' existing investments being "churned" into a CIP without adequate consideration of suitability.
It was also worried customers would incur increased, less transparent costs as a result of a move with fewer or no additional benefits.
Today's paper outlines examples of good and poor practice of firms' use of DIFs, DFMs and model portfolios.
Among its recommendations is that firms should assess each individual customer's specific needs and objectives to see if the CIP is suitable.
If it is unsuitable, the firm must recommend an alternative solution or make no recommendation, it suggests.
Meanwhile, on replacement business - which concerns firms switching an existing client from any investment product or solution to another - the FSA said it had identified a large number of firms failing to provide adequate justification to switch.
The FSA said this posed a "significant risk that consumers are receiving unsuitable advice to switch, when they may have been better off holding an existing investment".
It therefore recommended that firms should consider the issue of cost for all replacement business recommendations and justify why the new solution is likely to outperform the existing investment, where improved performance prospects are a reason for the switch.
It added firms must also collect the necessary information on the customer's existing investment and demonstrate why it no longer meets their needs and objectives.
In its recent Retail Conduct Risk Outlook, the FSA cited the used of centralised investment propositions as one of the key emerging risks in the sector.
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