View more on these topics

Half of advisers not reviewing risk mapping tool methods

More than half of advisers (52 per cent) using risk mapping tools are not reviewing the underlying mapping methodology, according to research from FE.

In a new report, FE collated responses from more than 130 advisers about their business models.

The research found the proportion of advisers using an attitude to risk questionnaire at the start of discussions with clients had increased from 76 per cent in 2016 to 91 per cent now.

However, just 25 per cent are using a third-party risk mapping tools to align the risk in portfolios matches the attitude to risk assessment. FE says this could be down to half of advisers thinking such tools are limited, describing them as “simplistic” and “too generic”.

The research found some advisers are often manually mapping attitude to risk questionnaire scores to investment solutions. FE also found some advisers are matching on asset allocation alone.

FE found more than half of advisers have not changed their investment process in the past two years.

FE research head Rob Gleeson says: “Where advisers are using third-party risk mapping tools, many are assuming both the risk profile outputs of ATRQs and of portfolios speak the same language, and that all they need to do is simply connect the two together.”

He says: “It does not necessarily follow that an investment portfolio or option that is described as ‘medium risk’ will be suitable to a client assessed as ‘medium risk’, yet many advisers appear to be taking this to be the case.”

The proportion of advisers who do not use risk targets when building a portfolio increased from 31 per cent in 2016 to 44 per cent this year.

The proportion of advisers not checking if their risk-targeted funds hit their targets also rose, with 67 per cent (2016: 57 per cent) not knowing the percentage of risk targeted funds in their portfolios that came within their targets last year.

Nearly one third (31 per cent) of advisers say they intend over the next 12 months to put nearly all (90 per cent) of their clients’ investments in a single investment proposition, down from 40 per cent two years ago.

Recommended

Who benefits from risk-rating partnerships?

The past few years have seen a rapid rise in the number of fund managers linking with risk profilers to launch new ranges. Determining risk is a central part of the advice process. But risk-profiling tools have been subject to criticism over the wildly different asset allocations they produce and their lack of consistency when […]

Risk profiling cover.jpg

Advisers called out on poor risk tolerance testing

Financial advisers need to engage in less systematic risk tolerance testing to position clients for high investment returns, according to risk profiling firm Oxford Risk. Speaking at a FinaMetrica/miPlanPlus event today, Oxford Risk head of behavioural finance Greg Davies says suitability across the industry is “rife with poor practice”. Davies says the most common adviser […]

BoE

All mortgage transactions on hold as BoE hit by technical problems

UK borrowers cannot access a mortgage right now as the Bank of England confirmed a key payments system has been hit by technical problems. The Bank says it identified a technical issue this morning related to some routine maintenance of the real time gross settlement system payment system and has paused settlement while it resolves […]

Harris Associates' view on the UK’s vote to leave the EU

By David Herro, Partner, Deputy Chairman, Portfolio Manager and Chief Investment Officer of International Equity at Harris Associates Britain’s vote to exit the European Union has led to significant uncertainty across global markets. We believe market impact of this uncertainty, though severe, is more of a shorter-term phenomenon which will provide an opportunity for long-term […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment