Advisers have backed warnings that risk-profiling tools could represent a ‘ticking time bomb’ for the advice industry.
Last week, The Platforum cautioned some investors and advisers were over reliant on risk-profile scores.
Advisers say they fear some are also using risk profile tools to cut corners.
Derbyshire Booth managing director Greg Heath says: “We would never use the results of a risk profiler on its own but I do believe there is a risk some firms are taking the results in black and white terms.
“We use a risk-profiling tool as a discussion point and as something to give us a rough idea. We then explain to the client exactly what that means in terms of the definition of that risk and what it means.”
Jacksons Wealth managing director Pete Matthew says: “As advisers we do have to engage with clients in a way they can understand so a scale is useful as people can relate to it.
“But anyone that takes a risk profiler in isolation as read is arguably negligent. We try to talk through with clients what the risk score could mean in pounds and pence and take them through some examples of the possible outcome so they understand what the risk means.”
In May, the FCA urged firms to ensure they were explaining risk scores clearly and said it had ongoing concerns about the application of risk profile tools.
Concept Financial Planning managing director Paul Richardson says: “There are going to be people out there that cut corners. People are paying for advice so they need that extra explanation. Just using a tool can only ever provide a guide.”