The Financial Services Authority (FSA) has written to wealth management firms setting out its concerns after a review of investor portfolios in a sample of 16 firms across the UK.
The review, which looked at a range of wealth managers from small independents to the private client arms of major banks, uncovered widespread failings in client portfolios. As a result the regulator is taking action against a number of firms, which it would not name. It found that 14 of the 16 firms were creating portfolios that posed a high or medium-high risk, to the detriment to the individual.
Almost 80 per cent of the portfolios looked at by the FSA - which checked suitability against information provided about the investor, including their experience and investment objectives - had either a high risk of unsuitability, or the suitability couldn't be determined.
The FSA said that in some cases it had found no record of the investor's financial circumstances, with firms making investment decisions without sufficient information on an individual's experience and objectives.
The letter sent by Margaret Cole, managing director of the FSA's conduct business unit, to chief executives of some 260 firms running investment portfolios for private investors, said the review had "identified significant, widespread failings, which we are concerned may also be prevalent in firms outside our sample".
The letter continued: "These findings give rise to concerns that there is an unacceptable risk of customers of wealth management firms experiencing unfavourable outcomes."
The FSA, which is to carry out another review later this year, said some firms in the initial study were subject to ongoing regulatory action.
Investors made 1,148 complaints to the Financial Ombudsman Service about portfolio management in the year to the end of March, up from 1,040 in the previous 12 months. Two-thirds of complaints are upheld, according to the FOS.