The Financial Services Authority (FSA) has fined Savoy Investment Management Limited $522,000 for failing to take reasonable care to ensure the suitability of the investment portfolios of its wealth management clients.
“Savoy failed to record and maintain enough client information to control the risk of unsuitable investment portfolios for its wealth management clients,” said FSA enforcement chief Tracey McDermott. “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.”
The FSA alleged that Savoy allowed its investment managers a high degree of discretion to advise its wealth management clients on their investment portfolios.
It 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.
A review of a sample of files found that 23 percent 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Files often lacked information on clients’ personal and financial circumstances and contained out of date and inadequate client information.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 unfavorable outcomes.
FSA officials said that 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 percent discount, without which the fine would have been $748,,000.
Savoy has also taken steps to change its management structure and processes.