The Financial Services Authority (FSA) has fined Savoy Investment Management Limited (Savoy) £412,000 for failing to take reasonable care to ensure the suitability of the investment portfolios of its wealth management clients
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.
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 Files often lacked information on clients’ personal and financial circumstances and contained out of date and inadequate client information.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.
Notes for editors
- The Final Notice for Savoy Investment Management Limited.
- Savoy is a wealth management firm which specialises in the provision of portfolio investment management services on both a discretionary and a managed advisory basis, as well as providing execution only services. Savoy is a wholly owned subsidiary of Ashcourt Rowan Plc, which is listed on the AIM in London with a market capitalisation of approximately £40 million and reported £4bn funds under management at 31 March 2012.
- Savoy has agreed to conduct a past business review of its investment advice and discretionary services for clients with managed portfolios. Savoy has volunteered to compensate such clients who may have suffered a loss as a result of any failings on its part. Savoy is writing to potentially affected clients.
- Following the first phase of its thematic review of the wealth management industry, the FSA issued a Dear CEO letter to all firms on 14 June 2011. The Dear CEO letter to wealth management firms can be found on the FSA’s website.
- More information on phase one of the FSA’s review into the wealth management sector.
- The FSA issued a press release on 29 August 2012, announcing that it would be carrying out a further phase of thematic work on wealth management firms. That phase is currently underway.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent in late 2012 or early 2013, subject to the parliamentary timetable.
