Savoy Investment Management Limited failed to take reasonable care to ensure the suitability of the investment portfolios of its wealth management clients, the Financial Services Authority has said following its decision to fine the firm.
Wealth manager Ashcourt Rowan has agreed to a fine of £412,000 from the FSA for a number of legacy issues relating to investment suitability in its Savoy business.
According to the FSA, Savoy allowed its investment managers a high degree of discretion to advise its wealth management clients on their investment portfolios.
But the regulator said it found the firm, a subsidiary of Ashcourt Rowan, had limited front office controls and its other processes failed to ensure the suitability of its advice and portfolio management.
This included failures to collect and record know your client information and failures in its compliance monitoring processes.
As a result of these failings, a review of a sample of files found that 23% showed a high risk of unsuitability.
Files often lacked information on clients' personal and financial circumstances and contained out of date and inadequate client information.
This meant there was a high risk that investment managers were making investment decisions that did not match clients' expectations and their attitude to risk.
The FSA reviewed Savoy as part of its thematic review of the wealth management sector. The thematic review found there was an unacceptable risk of clients of wealth management firms experiencing unfavourable outcomes.
Tracey McDermott, director of enforcement and financial crime at the FSA, said:
"Savoy failed to record and maintain enough client information to control the risk of unsuitable investment portfolios for its wealth management clients. From as early on as 2009, Savoy was aware of deficiencies in its client records but failed to take action, meaning that these failings persisted for 22 months.
"It is critical that wealth management firms properly identify and record client needs and monitor the suitability of their advice and discretionary management services.
"Wealth management firms should be aware that the FSA is now undertaking a further review which will include assessments of systems and controls.
"We expect firms to heed our warnings on standards within the wealth management sector and learn the lessons coming out of our enforcement actions. We will take robust action against firms and individuals where we find serious failings."
Savoy is doing a past business review of its investment services to its wealth management clients, which will determine whether clients need to be compensated.
Savoy agreed to settle at an early stage and qualified for a 30% discount, without which the fine would have been £590,000. Savoy has also taken steps to change its management structure and processes. Without these changes and the past business review, the financial penalty would have been higher.
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