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FSA sets out risk-suitability guidelines for advisers

The FSA has finalised its risk-suitability guidance for advisers, laying out a number of examples of good and bad practice.

The guidance on assessing the suitability of funds for clients, published this week, says many firms are failing to collect and properly account for all the information relevant to assessing client risk.

The FSA says its research suggests many advisers are failing to adequately consider a client’s capacity for loss.

It warns that firms are relying too much on risk profiling and asset allocation tools and suggests firms should mitigate against possible flawed results.

The report says: “These tools often have limitations which mean there are circumstances in which they produced flawed results. Where firms rely on tools they need to ensure they are actively mitigating any limitations.”

The regulator says it will assess how firms react to this report in future supervision and warns firms should take action to ensure their risk allocation is “robust”.

The report says: “We expect all firms to consider whether they need to improve the way they assess and check the risk a customer is willing to take. As we apply our intrusive and intensive supervisory approach, we will be looking to see how firms have acted on this report.”

Axis Financial Planning director Owen Wintersgill says: “IFAs want to know where the problems with risk-profiling tools are, but the FSA will not identify individual brands. I think the manufacturers of the risk-profiling and asset allocation tools and the regulator need to work on the limitations together.”


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