Rathbones case a consumer duty ‘warning shot’ for UK investment firms

Stuart Murdoch of Pinsent Masons was commenting after Rathbones disclosed that the Financial Conduct Authority (FCA) had exercised its powers to commission a ‘skilled person review’ – an independent expert assessment – into its business.

In a statement issued to the London Stock Exchange, the company said the review had “identified areas for improvement within the Group's UK Wealth Management business regarding the implementation and embedding of Consumer Duty, as well as certain aspects of its compliance, oversight and assurance arrangements”.

Rathbones’ statement detailed a series of actions the review’s findings have prompted it to take, which include voluntarily pausing the onboarding of new clients that require enhanced due diligence (EDD) checks and the acceptance of inflows into general investment accounts from some existing EDD clients. It said it further intends to stop charging investment management fees on cash balances held within clients' discretionary portfolios from 1 July as part of a wider review it is carrying out into its pricing. This, it said, is “part of its ongoing commitment to delivering fair value for clients”.

Murdoch said: “This is a serious warning shot to the industry. Consumer duty implementation is complex and dealing with questions of fair value is not at all simple. As ever, retail products which make very high profits are concerns from a consumer duty perspective.”

“Earnings on cash continues to be a major focus for the FCA – as is the wealth advisory industry generally. In relation to EDD clients, the issue is about processes and policies as well as outcomes. We are reminded again that attempts to reduce onboarding friction which results in corner cutting will ultimately be a false economy. Concerns over fraud, sanctions and wider financial crime will continue to mean an ever more burdensome gatekeeper role for financial services firms in preventing bad actors accessing products and services,” he said.

“Public comments from both the FCA and Rathbones allude to the regulatory process in this case being one featuring constructive engagement, which highlights the benefits to firms of maintaining strong relationships with the regulator,” Murdoch added.

To meet their consumer duty requirements, financial firms must act in good faith, avoid foreseeable harm and enable and support their customers to achieve their financial objectives.

FT Adviser reported on Thursday that Rathbones had charged clients to manage the surplus cash in their portfolios, while also earning around £1.66 million a week by retaining some of the interest earned on the cash.

In December 2023, the FCA wrote to chief executives within the wealth management industry (5-page / 150KB PDF) to raise “serious concerns” about the way some firms had both retained interest from and took a fee or charge on customers’ cash. This is known as ‘double dipping’. The FCA said the practice could be confusing for consumers and may not be in line with the consumer duty.

“We do not consider that it demonstrates that a firm is acting in good faith, that is honest, fair and open dealing, and acting consistently with the reasonable expectations of customers,” the FCA said in its letter at the time.

Citing people familiar with the situation, the Financial Times reported on Wednesday that the implementation of the merger between Rathbones and Investec Wealth & Investment UK in 2023 had acted as a drain on internal resources that impacted on the company’s implementation of its consumer duty requirements.