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Risk perception needs to change

The fundamentals of asset allocation in relation to risk as a result of the credit crunch were debated by panellists at last week’s Money Marketing RDR & Economic Update.

Bluefin group director of research and product development David Cartwright said that people have taken more notice of the risk of asset allocation as it has become more visible.

Cartwright said the likes of counterparty, money market and currency problems have all introduced a new type of risk to the IFA business.

He said: “We, as a business, are focused on asset allocation and investment risk and, as an industry, we have not focused closely enough on institutional risk that we have to consider through the likes of structured products.”

Taxbriefs editorial director Danby Bloch said: “Clearly, the risk was always there, we just did not see it. Past performance is not always a future guide, particularly recent past performance. It seems that our perception of risk needs to change quite considerably as we have accepted the traditional financial theories without acknowledging that things simply happen in markets.

“We are now in a different market but again there will be opportunities and in five to 10 years time, the likes of equities and corporate bonds are likely to look cheap historically.”

Seven Investment Management marketing director Justin Urquhart Stewart says: “There is a focus on a short-term issue of a long-term event. Risk management tools that IFAs are given, such as ‘sarcastic modelling’ tools, are astonishingly inflexible and are all about carrying out the investment process without looking at the risk process. The biggest problem we have is the poor sentiment that we are continually doomed instead of realising those who are still working are better off. Trust and confidence are the key.”

Defaqto economist Michael Baxter says: “Risk is a building block to progress and you need to innovate and that cannot be done without failure.”

Debate sponsored by Aegon, Clerical Medical and Prudential

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