FOI request shows FCA fines this year are £3.8 million for the adviser and intermediary, platforms, and wealth management categories
But failure to address suitability and risk tolerance issues could send fines higher in the wake of Consumer Duty, Oxford Risk believes
The wealth management sector has paid out £3.8 million in fines issued by the Financial Conduct Authority this year and risks the scale of penalties increasing in the wake of Consumer Duty, behavioural finance experts, Oxford Risk are warning.
A Freedom of Information (FOI) request by Oxford Risk shows the FCA has imposed £3.8 million in fines on the adviser and intermediary, platform, and wealth management categories covering individuals and firms up to end of September.
The £3.8 million in fines levied on the sector equates to around 7% of the total £52.8 million in fines imposed by the FCA in the year to date.
Oxford Risk’s FOI request shows the total in fines paid by the adviser and intermediary, platform, and wealth management categories is £36.7 million since the start of 2019.
The worst year in terms of fines was 2022 which saw £21.8 million paid in fines by the sector which equated to around 10% of the total collected in fines that year by the FCA. More than £9 million was paid in fines during 2020.
Oxford Risk highlights how new FCA Consumer Duty rules say: “Firms must understand and take account of behavioural biases and the impact characteristics of vulnerability can have on consumer needs and decisions.”
It warns that failure to do so could increase the number of firms and individuals being fined by the FCA and see the total paid out by the sector rising again. Its software supports wealth managers to assist their clients in making the best financial decisions in the face of complexity, uncertainty, and behavioural biases.
James Pereira-Stubbs, Chief Client Officer, Oxford Risk said: “The wealth management sector including advisers and intermediaries and platforms works hard to deliver good customer outcomes, so it is disappointing to see as much as £3.8 million paid out in fines.
“The worry is that the introduction of Consumer Duty could lead to the level of fines rising even further and the issue is that very often the fines and damage to consumer outcomes are entirely avoidable if wealth managers make use of the tools and solutions that are available.
“Wealth managers need to document behavioural biases and risk tolerance as part of their suitability systems and processes and crucially need to understand how to act upon the information to ensure good customer outcomes.”
Oxford Risk’s behavioural tools assess financial personality and preferences as well as changes in investors’ financial situations and, supplemented with other behavioural information and demographics, build a comprehensive profile. Its financial personality tests can measure up to 20 distinct dimensions, of which six reflect preferences for sustainable investing.
The firm believes the best investment solution for each investor needs to be anchored on stable and accurate measures of risk tolerance. Behavioural profiling then provides an opportunity for investors to learn about their own attitudes, emotions, and biases, helping them prepare for the anxiety that is likely to arise. This should be used to help investors control their emotions, not define the suitable risk of the portfolio itself.
