A review of British wealth management firms and their use of proprietary products found that firms are generally doing a good job of managing conflicts, but it also saw problems in the way these products are used in client portfolios.

The UK Financial Conduct Authority (FCA) on Monday published the results of a review of the wealth management and private banking sector that aims to assess how well firms identify and manage conflicts of interest when using in-house investment products.

The FCA says that overall it found senior management recognize these risks, and have taken steps to manage the conflicts of interest. However, it also found weaknesses in the way firms monitor the way these products are used and communicate with consumers.

For instance, the FCA says that it found that firms do not clearly articulate how proprietary products fit within their business model and strategy, and are aligned with customers’ interests. It also discovered that not all firms monitor the level of proprietary products in customer portfolios. And, that communications with clients were not always clear about the nature of the firm’s services and the extent to which proprietary products might feature in customer portfolios.

The report notes that, “Trust and confidence between the wealth management industry and their customers can be at risk if firms do not adequately manage their conflicts of interest. Without management of those risks, investment decisions can be made that result in unfavourable outcomes for customers, such as poor product selection and portfolio performance.”

“We found most firms identified and addressed potential conflicts of interest – however, there is more that they could do to maintain high professional standards,” said Robert Taylor, FCA head of wealth management and private banking. “We’d like to see all wealth management firms that make significant use of in-house products able to explain how this fits within their wider business strategy and is aligned with their customers’ interests. We’d also like firms to ensure they have clearly explained the use of [proprietary products] to their customers.”

The FCA says that it will be giving individual feedback to the firms that were examined in the review, to address any issues that it uncovered. Other firms that use proprietary products are expected to consider how their own arrangements meet the standards set out in the report. However, it’s not planning further thematic work within the wealth management and private banking sector on these conflicts of interest.

The review was based on a sample of 18 wealth management and private banking firms which had a total of £146 billion of retail customers’ assets under management; about 20% of this amount is allocated to proprietary investment products.