As Thomson Reuters has reported, client money has continued to be high on the FSA’s agenda and last year it sent a Dear CEO letter to firms highlighting the regulator’s ongoing concerns about poor practices in handling client money. This letter followed a letter to compliance officers sent in 2009.

Part of the Towry fine was for actual breaches in client money handling but part was for providing misleading information to the FSA when it replied to the “Dear CEO” letter stating that it was fully compliant with the Client Asset Sourcebook (CASS) rules.

The FSA subsequently paid Towry a visit and found that this was not the case. “Towry failed to ensure the response was properly considered before submitting it to the FSA. The reality was that the firm was not compliant and this only became apparent after the FSA, as part of a CASS visit to the firm, discovered the breaches,” the FSA said.

The regulator has taken exception to being the first to spot problems within a firm. It expects firms to be sufficiently aware of their own compliance issues to spot potential problems and to notify the FSA, not the other way round. The situation becomes even worse when the firm and its peer group have had numerous actual warnings of breaches found at other firms.

The final notice said that Towry had failed to undertake adequate enquiries before replying to the “Dear CEO” letter dated January 19, 2010, saying that it was compliant with the FSA’s client money and custody requirements. Nor had Towry disclosed “appropriately” breaches of CASS requirements. These breaches had taken place over a period of more than nine years.

Board oversight

Ian Mason, a partner at Baker & McKenzie, told Thomson Reuters that the FSA was making an important point with this fine. Chief executives needed to read “Dear CEO” letters and there needed to be proper board oversight of the responses. Mason suspected that this had not happened in Towry’s case. “Management needs to ensure it has proper procedures in place to consider and respond to ‘Dear CEO’ letters,” Mason said.

Fisher, who declined to comment for this article, has always been an outspoken critic of his own industry and a supporter of the FSA in its attempts to raise standards in the industry with initiatives such as the Retail Distribution Review (RDR). When the FSA published its interim RDR report in April 2008, Fisher told Thomson Reuters that the paper was “outstanding” and “very bold”.

Commenting on the FSA’s plans to scrutinise firms’ business plans as part of its more intrusive approach to supervision, Fisher said: “I think it’s a great idea. I’d be very happy if the FSA took a look at my business model. If they found it wanting, which I doubt they would, I’d be glad someone had pointed it out to me.”

The FSA said that Towry was in breach of Principle 11, which requires firms to deal with the FSA in an open and cooperative manner. It said that “Dear CEO” letters were important regulatory tools and that firms needed to consider them with particular care. It said that the firm’s CASS breaches could have placed clients’ money at risk of potential loss had the firm become insolvent.

Although the breaches took place over more than nine years, in the past year or so only higher net worth individuals would have been affected. Following a spate of acquisitions over the past few years Fisher made no bones about the fact that the firm consistently trawled through its customer base and got rid of all those customers it had inherited through acquisition but who did not meet its minimum investment criteria.

The Towry fine follows other enforcement action for client money breaches including the £87,750 fine of foreign exchange broker ActivTrades and the ban and fine meted out to David McGrath, its CF10.

Tracey McDermott, acting FSA director of enforcement and financial crime, said: “Open and accurate communication with the FSA is of fundamental importance to the functioning of the regulatory system. It should go without saying that taking steps to ensure information provided to us is properly considered, up-to-date and correct is a basic regulatory requirement.

“It is very disappointing that Towry failed to do so, particularly in an area of such regulatory importance. Firms should be in no doubt about how seriously we regard such failures.”

November 16th   7pm – 9:30pm

Hilton Hotel

Portsmouth

The volatility that the worldwide financial markets have witnessed in recent years has renewed the need for expertise and greater transparency, and this is exactly what Adviser Solutions Business provides with the Sentinel Fund.

Managing Director of Adviser Business Solutions, Ben Armstrong, comments, “We aim to make the investment strategies of our fund managers as transparent as possible, as it is vital that our clients fully understand what lies behind the decisions and directions the investments take. Bringing our clients together in a seminar such as this encourages this level of understanding”.

Thanks to the skill of the three fund managers behind the Sentinel Fund, launched almost two years ago, the investment funds have performed very well in a challenging climate and continue to offer an excellent managed investment strategy for ISAs, pensions, bonds and trusts.

The Sentinel Fund comprises three funds, whose components carry varying degrees of risk. This structure allows for the tailoring of investment strategies depending on the risk clients wish to take. Each client receives a strategy based on a blend of components from the Sentinel Fund portfolio.
Transparency is a main theme for Adviser Business Solutions and a key objective of the evening seminars is to keep clients up to date with the performance of the Sentinel Fund and give them the chance to ask questions to the people managing their money.

“The seminar was a resounding success and we were delighted that so many of our clients felt it had been such a worthwhile evening. It is our intention to run these events every six months which will enable our fund managers to supply regular updates”, adds Armstrong.

For more details on Adviser Business Solutions and the Sentinel Fund, contact Ben Armstrong on 02392 614 466 or enquiry@adviser-solutions.co.uk

About Business Adviser Solutions
Established in 2007 and with offices in Emsworth and Portsmouth, Adviser Business Solutions services include report writing, compliance, the provision of professional indemnity cover and back-office administration. The Adviser Business Solutions group also includes Independent Financial Solutions (www.ifsnet.co.uk), which offers independent financial advice on all aspects of financial planning. Since 2008, Adviser Business Solutions has also provided managed investment strategies through the Sentinel Fund.

Evening of the 23rd May 2012

Hilton Hotel, Eastern Road, Farlington, Portsmouth, PO6 1UN

Your risk return profile has been determined by the weighting of your responses to specific questions. The calculated risk profile from the answers to the questionnaire suggests that you should use an efficient frontier portfolio as detailed below:

LEVEL 6: VERY AGGRESSIVE

You have a very high tolerance to investment risk. This will allow you access to a wide range of funds, which will target specific assets with potential for high growth. These funds can offer a high level of real return in the longer term. As they focus on asset types or specific markets that undergo a high degree of price change, they can, and often do, experience greater than average volatility. Diversification will usually be compromised in an effort to achieve higher real returns and there will be a significant chance that the value of your assets may fall and could take several years to recover their original value. It is likely that you are looking to invest over the long-term. You should note that these funds are subject to market movements and currency risk.

The ideal Asset Allocation for a Very Aggressive Risk Rating is listed below

Your risk return profile has been determined by the weighting of your responses to specific questions. The calculated risk profile from the answers to the questionnaire suggests that you should use an efficient frontier portfolio as detailed below:

LEVEL 5: AGGRESSIVE

You have a willingness to accept high investment risk. This enables you to include a wide range of equity assets with good long-term growth prospects. Although asset class diversification will usually be compromised in an effort to achieve higher real returns, the Fund Manager can use both UK and overseas equities to react to specific market conditions. You should note that these funds are subject to market movements and currency risk.

The ideal Asset Allocation for a Aggressive Risk Rating is listed below

Your risk return profile has been determined by the weighting of your responses to specific questions. The calculated risk profile from the answers to the questionnaire suggests that you should use an efficient frontier portfolio as detailed below:

LEVEL 4: MODERATE

You accept that an increased investment risk is inevitable if you are to achieve attractive real returns. Investments in this category usually offer reasonable growth potential in the medium term. Although risk is reduced through diversification across markets, the Fund Manager can use this wide choice of assets to adjust exposures according to specific market conditions. You should note that these funds are subject to market movements and currency risk.

The ideal Asset Allocation for a Moderate Risk Rating is listed below

Your risk return profile has been determined by the weighting of your responses to specific questions. The calculated risk profile from the answers to the questionnaire suggests that you should use an efficient frontier portfolio as detailed below:

LEVEL 3: CAUTIOUS

You accept that investment risk is inevitable if you are to achieve reasonably attractive real returns. Funds in this category usually offer reasonable growth potential in the medium term and can produce an income. Similarly, their currency risk is reduced through limiting the exposure to overseas assets, however you should note that these funds are still subject to market movements.

The ideal Asset Allocation for a Cautious Risk Rating is listed below

Your risk return profile has been determined by the weighting of your responses to specific questions. The calculated risk profile from the answers to the questionnaire suggests that you should use an efficient frontier portfolio as detailed below:

LEVEL 2: VERY CAUTIOUS

You have a low tolerance to investment risk. This implies that you would accept a small amount of investment risk to achieve the growth that you require, but only if this can be achieved with a low degree of price volatility. Whilst your tolerance to risk is low, you recognise that diversification is important and therefore, you accept a limited amount of equity exposure. Although the volatility of your asset mix may be less than that of the Moderate Portfolio, you accept that by taking a conservative approach, inflation may reduce the purchasing power of your savings. You should note that these funds are subject to market movements.

The ideal Asset Allocation for a Very Cautious Risk Rating is listed below