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FSA warns on ‘systemic misselling’ from poor DFM risk mapping

Rory Percival FSA

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

the DFM.

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.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Rush for the text-book!
    Experience tells a different story.
    Regulators, Commentators and Advisers all over-estimate the ability of ATR testing to precisely judge a client.
    The same group over-estimate the clients ability to answer the questions according to their core beliefs.
    The fact remains:
    – clients only complain when they lose money.
    – clients change their ATR opinion based on what happened to the FTSE that week/month.
    – clients change their ATR answers depending on what they watched on the telly last night or heard at the pub.
    – our regulator will look for a Profiler mismatch as fair justification of a complaint about poor growth.

    Get real! We are dealing with an infinite number of variables, this is not a precise science.
    Happy clients don’t complain, keep your client happy and REALLY know your client, because no Profiler will ever protect you.

  2. Biggus Dickus 3rd May 2013 at 8:18 pm

    This article is 9 weeks old (and still most, if not all,,of us are any the wider as to DFM risk mapping might be ~ buggered if I know). Isn’t it about time it was chucked in the bin, MM?

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