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Stephen Womack: Savers must accept risks of off-piste investments


I was lucky enough to enjoy a wonderful few days skiing in France and Switzerland last month. My companions and I found ourselves spending a couple of long chairlift rides musing over the dangers of skiing, particularly how to keep our exuberant teenagers safe while at the same time giving them the thrills they craved.

Make no bones about it; skiing can be a risky sport. Snow conditions this year have been difficult and by mid-February there had been more than 70 fatalities on European slopes, mainly through avalanches. Yet in the context of overall numbers, these tragic deaths represent a very tiny proportion of those who enjoy the sport. Where I was in the Portes du Soleil, skiing runs on an industrial-scale, with lifts that have the capacity to take many tens of thousands of people per hour high into potentially hostile mountain territory.

This conversation about safety got me thinking. Are there lessons for the financial services sector in the way skiing approaches and manages risk? In particular, following the publication of the Financial Advice Market Review, are there ways you can signpost consumers to where dangers lie without having to tie them (and ourselves) up in expensive red tape?

On the mountain, there is a simple colour coded system to grade your route back home. Green is very safe and simple, while blue is marginally harder. Red runs offer more speed and a likelihood of a few bumps, and, of course, the black runs are the most challenging, with adrenalin to match. In a simplified product or advice world, a similar colour coding could highlight the potential risks and rewards of each investment.

The job of a good ski instructor, like an IFA, is to sometimes encourage people to push themselves a little beyond their comfort zone while at the same time keeping the risks under control.

In skiing the greatest risks – and arguably the greatest rewards – lie in going off-piste: into areas of the mountain that have not been shaped or prepared to ski on. And it is here that the lessons for financial services are perhaps most telling. It is made crystal clear that when you move off the piste you are effectively going into unregulated territory. Your travel insurance will often not cover you for any injury. The risk and costs of disaster sit squarely with the individual.

This fosters a sense of self-responsibility. There is no way the person who hired you your skis is held accountable for how you use them. This is a stark contrast to some of the recent claims against Sipp providers and advisers held liable for self-directed investment decisions.

And that self-responsibility leads to a culture of risk management. Serious skiers always wear an avalanche transceiver and carry a collapsible spade and probe. They avoid south-facing slopes in the afternoon as the heat of sun can make the snow there more unstable.

In short, the awareness of risk is matched against the expectation of reward. And that ensures we all make it safely down the last run to the bar at the end of the day.

Stephen Womack is a chartered financial planner at David Williams IFA


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Soundly argued, although I suspect that advisers will remain alone on the slippery slope for some time to come, despite flagging up warnings to the over-confident.

  2. The FCA doesn’t recognise caveat emptor and doesn’t bother to check if intermediaries recommending off-piste investments have in place suitable PII cover.

    The FOS is largely biased towards a claimant’s version of events (even if entirely unsupported by any documentation) whilst

    the FSCS just loves to take on everything and anything for which responsibility might be laid at the door of the regulated adviser community who are forced to pay up under threat of confiscation of their livelihoods if they don’t. This is Mark Neale’s idea of the FSCS funding system “working fairly well”, although he does profess “sympathy” for our plight.

    Still, never mind, all these things will be sorted out by the FAMR (after a further five years of consultations, discussions and all the other prevaricatory bullshit in which the FCA specialises).

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