The Financial Conduct Authority has called on wealth managers to justify high fees and prove value for money in a 'Dear CEO' letter.

The letter said the regulator has seen many wealth managers failing to meet their Consumer Duty obligations on pricing and value, as well as consumer understanding.

The regulator has warned wealth managers and stockbrokers that they will need to justify their high fees and ongoing advice charges as it looks to crack down on its new Consumer Duty rules.

The Consumer Duty requires wealth managers to prove they provide fair value, where the amount paid is reasonable relative to the benefits the retail customer can reasonably expect to achieve.

In its warning, the FCA said that it had seen wealth managers fail to consistently provide clear disclosures on their fees or charging structures. It said some customers were unaware how high fees could significantly reduce their investment returns.

The FCA added that it had seen wealth managers charge high average fees and charge some individuals very high fees.

The letter added that it had also seen evidence of wealth managers charging for services that have not been delivered, including fees for ongoing advice.

It added that it plans to conduct more unannounced visits due to finding that many wealth managers may not have been meeting the obligations of the Consumer Duty.

The regulator also criticised wealth managers and stockbrokers for their response to fraud and scams.

It said that some managers have “lost consumers significant sums to scams and fraud, and have enabled money laundering, causing significant negative economic, market and social damage” and “exposed consumers to inappropriately high-risk or complex investments and provided consumers with poor value products and services.”

It added that the FCA had seen firms launder the assets of illegitimate clients “through greed or incompetence” and others “squander or even steal the assets of legitimate clients” through fraud and scams.

Lucy Castledine, director for consumer investments at the FCA, said: “Our supervision will become more targeted, intrusive and assertive. Our new, dedicated financial crime function for consumer investments will focus solely on identifying firms with key fraud, scams or money laundering indicators.

"We will increase engagement with you on non-financial misconduct, with anecdotal evidence supported by recent cases reported to us and public negative press articles. We have already started a major drive with short notice and unannounced visits, particularly for financial crime. And we are increasing the use of our supervisory tools and powers. We will use the Consumer Duty to intervene quickly against potential or actual consumers harms, on an individual or multi firm level.

“We will consider in future engagement whether you have taken appropriate action to rectify the root cause of any issues, which is often poor and ineffective leadership, governance, systems and controls and conflicts of interest management. We will take action if you have not.”