The FSA says advisers should “sense-check” their recommendations to ensure they reflect clients’ attitudes to risk rather than relying on a tick-box, process-driven approach to risk-profiling.
Speaking to Money Marketing, FSA head of conduct risk Nausicaa Delfas says some processes can lead to a gradual shift away from clients’ actual risk tolerance.
She said: “You might have the processes in place and be ticking the boxes but what is actually important is whether the outcome for the consumer is the right one, so you need to cross-check and sense-check the findings. The specific sections of the investment process, from using a risk-profiling tool through to picking investment products, all link together and if they do not, you can end up in a different place to where you should be in terms of risk.”
Research carried out by the FSA as part of its guidance on assessing suitability, published in March, found poor risk assessments were behind half of all investment files it found to be unsuitable.
Delfas says the regulator was concerned the problem could grow if it did not intervene, so it issued the guidance and held a seminar for advisers on the issue in London last week.
She said: “We want to work with the industry to fix this but we will not rule out taking action if problems continue.”
Syndaxi Financial Planning managing director Robert Reid says: “The FSA is good at telling us what not to do but why hasn’t the regulator come up with some kind of best practice guide?”