The FSA has issued a written warning to 260 chief executives after it checked a sample of files at 16 wealth management firms and found serious and widespread failings.
Although the names of the firms have not been disclosed, they are likely to include international private banks, High Street names and City firms.
Typically their clients would have more than £100,000 to invest. But the FSA's evidence suggests they have been given shoddy treatment.
The firms didn't know what risks customers were willing to take or what their investment objectives were. Often, they could show no record of a client's financial situation.
In 4 out of 5 cases there was a high risk that the investment portfolio was unsuitable for the client.
Investment insiders suggest that, in total, the targeted firms could have tens of thousands of customers.
The FSA found that there was a high risk that investors had lost out. If that is proved in follow-up investigations, the firms could have to pay compensation.