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Relationship problem

Most IFAs have taken on board the need for risk profiling of clients. While it is not always possible to put people into neat little categories, nevertheless, it acts as a break against vexatious claims by clients afterwards if the value of their investments fall due to market conditions or does it?

For example, if a client profile shows that he is a fairly cautious investor, then it would seem reasonable for an IFA to consider an investment in the cautious managed sector.

However, there was a disturbing case recently, where an IFA did select a fund in the cautious managed sector for a cautious client but, following a claim, it was deemed to be unsuitable because of the underlying investment mix.

This raises the intriguing question of the relationship between product providers and the FSA. If the provider had placed the fund in the wrong sector, then surely the blame is fairly and squarely at his door and not with the IFA.

To begin with, matters are not helped by providers using different scales of risk for their products, typically one to six, one to nine or one to 10, so that there is no uniform measurement for judgemental purposes.

This is where the FSA should be instrumental in setting out the parameters to be used. At present, it suits both the providers and the FSA to “muddy the waters” so that in the event of a claim they can deflect the liability on to the IFA.
(Name & address supplied)


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