The FSA has warned advisers using DFMs run the risk of “systemic misselling” if their clients’ risk profiles are not correctly mapped against those of the outsourced investment solution.
Speaking at a Defaqto DFM conference this week, FSA technical specialist Rory Percival said the regulator has seen evidence that some advisers are not ensuring the risk profiles they use are aligned to those used by
Speaking to Money Marketing, Percival says: “Risk profiling is the key problem. If an adviser firm is carrying out risk profiling and the DFM is running portfolios which will always have risks associated with
them, who is making sure one matches up with the other? Mapping is key.
“A DFM’s portfolio risk may be different from the advisory firm’s assessment of risk. They need to be matched, otherwise you have effectively got systemic misselling on your hands.”
An FSA spokeswoman confirms the regulator will consider a thematic review if it sees significant misselling or large numbers of Financial Ombudsman Service cases.
Seven Investment Management marketing director Justin Urquhart Stewart says: “This is an area that constantly needs to be under review because risk profiles can change from firm to firm and clients’ attitudes to risk change over time.”
The Platforum managing director Holly Mackay says: “A concern we hear raised is of a frequent mismatch between what advisers and DFMs consider ‘balanced’.”
Finametrica co-founder Paul Resnik says: “Different aspects of a client’s life can point to different risk attitudes. Risk profiling solutions that conflate all into a simplistic portfolio recommendation are
likely to be vulnerable to misselling claims.”