David Prosser: Wealth management is a con trick invented by marketing managers

Outlook For an organisation working towards an orderly break-up as part of a shake-up in financial regulation, the Financial Services Authority (FSA) is keeping itself busy. Yesterday, it revealed two big disciplinary results before lunch – a £700,000 fine and a two-year jail term – and returned to the fray in the afternoon with a broadside against Britain's wealth-management industry.

Still, these actions are not as unrelated as one might think – particularly the FSA's crackdown on a pernicious boiler-room scheme, and its warning that wealth-management companies may have done a poor job for very significant numbers of their clients.

The reaction of many people to tales of boiler-room fraud is surprise that anyone would fall for such a scam. In fact, the development of the wealth-management industry over the past decade or so has been as much an exercise in exploiting people's credulity as the more blatant frauds promulgated by boiler-room cheats.

Even the phrase "wealth management" is a con. There is no standard definition of what it means – even the FSA does not feel able to supply one – because this is an amorphous concept to which marketing directors across the financial-services industry are attracted for its pulling power.

For the purposes of this inquiry, the FSA is thinking of any company that takes investors' money and chooses investments on their behalf, either on a fully discretionary basis or by offering advice. It is the sort of thing that firms ranging from banks to stockbrokers have been doing for donkeys' years, yet wealth management purports to be a modern creation.

The idea is to convey the impression that while you may not be a person of great means, you are now able to access the sort of sophisticated financial wizardry that was once reserved for multi-millionaires employing the poshest of private banks.

However, the reality of many wealth-management services, as the FSA has now discovered, is not much more than an automated system of allocating customers' cash to often poorly managed investment vehicles with little or no attention paid to some basic principles such as the client's attitude to risk or financial needs.

Naturally, the fortunate souls lucky enough to have gained access to this bespoke financial-management service pay through the nose for the privilege, further reducing their chances of making a decent return on their investments.

It is, in short, a swizz. But since wealth-management services are marketed by companies with which people are familiar – and come with literature featuring a regulatory seal of approval – savers fall for the patter. It may be a more sophisticated scam than a boiler-room fraud, but it's also more dishonest. Thank goodness that the FSA has finally got wise to the trick.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
Fans take a selfie with Ed Miliband in Kempston, near Bedford, on Tuesday
election 2015
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Chuck Norris pictured in 1996
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power