The flyer announces: “The FSA is to closely examine how advisers explain the meaning and implications of investment risk to clients. What are they expecting advisers to do?” It then continues: “If using a risk scale, each individual investment risk must be understood before placing the client on the scale. The client’s financial aims and the effect of external factors, such as a change in inflation, interest rates, securities and property markets, global economics, etc, all need to be taken into account in sufficient depth.”
Question – who has been more successful in forecasting the market and keeping their clients out of the mire – the FSA or IFAs? It is a simple question and a simple answer and the answer is certainly not the FSA.
The FSA “improved the risk” to the consumer in March 2003 by issuing an edict effectively forcing with-profits funds to divest shares and buy government stock. Shares went up by around 48 per cent and the gilt index fell by over10 per cent. Before that, the FSA had effectively changed all the rules of commerce, all-owing people to claim com-pensation before a contract ended and a loss was established. After that, the FSA allowed banks to provide mortgages for properties they knew (or should have known) were going to drop by 20 per cent or 30 per cent in value because, in the classic market, they always do.
Perhaps the reason the FSA continually get it wrong is because it is they who should be seeking advice from IFAs to upgrade their own ability before engaging in yet more costly and, as it has proved with the “asset allocation theory based upon historic performance”, a substantial waste of space.
Perhaps if the FSA knew how to use a risk scale itself, it would be competent to examine advisers but I have little confidence in their competence to do very much other than create new rules with no regard for those of us who have to read them.
Chartered financial planner