Investment suitability guidance from the FSA should be extended to include volatility and investment risk, according to Skandia Investment Group.
According to Skandia, the issue of volatility and risk has become increasingly important in light of recent stockmarket volatility.
Skandia portfolio manager Ryan Hughes says: “The FSA guidance on assessing investment suitability is very good, however, we’d like to see it explicitly covering volatility and investment risk.
“Investment returns, cost and tax are naturally very important factors but a customer’s understanding and tolerance of risk must also be factored into a suitability assessment.
“Financial advisers should be able to demonstrate that the investment solution they are recommending is being specifically managed to remain within a set volatility range for its entire lifecycle, rather than just having a risk score attributed to it at any one point in time.”
Hughes says there is more than £6 billion held in risk-targeted funds, with demand likely to increase ahead of the implement ation of the retail distribution review (RDR).