The FCA says it is still concerned about advisers’ use of risk profiling tools and that firms are failing to clearly explain to clients what different risk profiles mean.
The regulator first warned about risk profiling tools in January 2011, after it found that nine risk profiling tools out of 11 reviewed could lead to flawed results.
Speaking at an eValue conference in London today, FCA technical specialist Rory Percival said while the number of firms assessing capacity for loss has improved, the regulator does not believe the issues with assessing suitability have gone away.
Percival said: “We still have concerns about this. We are talking about it now because in our day-to-day supervisory work we continue to see problems.”
He said some firms are failing to provide clear and adequate client explanations about different risk profiles, and are also not being clear enough about the risk of making a loss.
Percival also discussed advisers’ use of centralised investment propositions, such as model portfolios and discretionary fund managers.
He said advisers need to ensure they are doing appropriate due diligence.
He said: “We have seen shortcuts sometimes on files where there is an assumption the CIP is better [than the existing investment]. If you do not go through a proper analysis you are essentially flipping a coin.”
One delegate asked whether there was anything the FCA could do to ensure consumers could not complain to the Financial Ombudsman Service about simplified advice recommendations.
Percival said: “The ombudsman is different to us and its terms of reference are not down to us. But where there is reticence around simplified advice we do hear the ombudsman is a log jam. We are mindful that is an issue and that has been factored into our thinking.”
The FCA is carrying out a review into simplified advice and non-advised sales, and is expected to report its findings in the summer.