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.