Risk-rated Funds – May 2012

Published by Money Management | Apr 18, 2012

The FSA’s recent consultation paper raised concerns about the practice of having a centralised investment proposition into which all clients are fitted into. Amid the flurry of debate on the subject, many issues were raised: should all clients but put into one proposition? Is segmenting the client bank enough? Should advisers accept incentives from providers? The list goes on.

Slightly aside from wholly outsourced solutions, risk-rated funds are offered as an ideal diversification tool that avoids the additional costs of deferring to a discretionary fund manager. However, they are not without their obstacles.

Just how advisers measure each client’s risk is the first hurdle, followed by how they select an appropriate fund, not to mention what scale the fund uses to measure risk and how closely it sticks to this measure. All of these aspects and more are explored in the examination of the market in this special report.

In addition, many providers are seeing risk-rating as a growing trend and retrospectively having their fund ranges rated. But how accurately are these funds rated and is there really a difference between those that set out to build such a fund from the ground up and those that do it after creating the fund?