I recently wrote a letter regarding risk profiling under the heading, Relationship problems, which was to highlight the inconsistencies of the
ratings used by providers and the need for the FSA to become more involved in ensuring that the products are placed in the correct investment sectors.
By coincidence, almost at the same time of writing, it appears that the FSA have decided to involve themselves in this area particularly with regard to product development, which is welcome, albeit somewhat belated.
The regulation column in Money Marketing on March 18 highlighted this problem. I am, therefore, surprised by the response of Robert Lockie on March 18, who does not consider that a product provider has any responsibility for ensuring that their product is in the correct investment sector.
He also comes up with a very curious formula for risk-profiling clients by stating that “one person might think that 10 per cent equity is cautious but another might think 50 per cent is”.
These are the imprecise judgements that the FSA is trying to avoid in an attempt to produce some continuity in the advice given.
Taking the first client, one would normally expect him to be regarded as “very cautious” and a cautious managed fund is, therefore, unlikely to be appropriate.
In fairness to Robert, I suspect that we are not a million miles away from each other in the practical aspects of assessing risk but feel very strongly that this does not abrogate the provider’s responsibilities.
One of the great problems we have as an industry is trying to put clients into neat little investment boxes, whereas, in reality, they are likely to straddle a number of risk profiles, building up as their assets increase.
Going back to my original point, this is why I consider products need to be correctly rated so advisers have at least a fighting chance of investing for their clients in the right areas.
Leading on from this, the key features documents produced by providers tend to be very comprehensive and are always handed to clients to read but, in the event of a dispute, tend to be ignored by the ombudsman, almost as if they did not exist. It is a strange world but we cannot have a situation whereby clients are responsible for some of their own actions, can we?
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