FSA guide altered way Prestwood asks about risk
Share
Prestwood Group of Companies chairman Paul Etheridge says the firm has changed the way clients are questioned about their attitude to risk since the FSA published its consultation paper on assessing suitability.
The FSA first published the guidance consultation in January and published finalised guidance in March. It cautioned firms against an over-reliance on risk-profiling tools and risk questionnaires and said firms should remember to also take into account clients’ capacity for loss.
Speaking at the Institute of Financial Planning annual conference in Newport last week, Etheridge said: “Until the FSA brought out the assessing suitability guidance, I thought we were good at what we were doing but we were not good enough.”
Etheridge said his company used the Finametrica riskprofiling system, which asks clients by how much the value of their total portfolio could fall before they would begin to feel uncomfortable.
Clients responded with a percentage, which Etheridge would accept. But he told the conference last week: “I do not accept that now, since the FSA’s paper came out. What I do now is turn that percentage into an amount of money. Now I say 20 per cent of your realisable capital now is £368,000. I challenge them on whether they are really saying they would not begin to feel uncomfortable until it went down by that much.
“Since I have changed what I was asking, everyone has changed their answer to that question, with one exception. If I had not asked that question in that different way, anyone attacking me as part of a complaint would have been on pretty strong ground.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
