Effective risk profiling key to showing DFM benefit
2Plan RDR report highlights role of risk assessment but identifies dangers in differences between tools
Effective risk profiling and suitability checks are the most important actions for IFAs justifying the use of a DFM, according to a report published today.
‘The RDR Inquiry’, published by 2Plan Wealth Management, questioned 270 adviser firms about the impact of the RDR.
As well as showing research, compliance and strict regulations are the top concerns of advisers wanting to remain independent, the paper questioned firms on how to demonstrate that using a DFM is the best option for a client’s investment management.
A substantial number of advisers, 33%, said undertaking risk profiling and suitability will be the primary way of showing a DFM is in a client’s best interests. The report notes, however, the difficulty of using risk-profiling tools since it is hard to compare one to another. Ranking in second place, 16% said IFAs should not act differently to today, but should just do a fact-find prior to appointing a DFM.
Adam Byford, managing director at Capita Financial Software and one of the interviewees for the qualitative step of the research, said “the adviser must do their job thoroughly to make sure that they recommend appropriate funds for the client’s objectives, capacity for loss, goal type, term, etc”. He added that these checks should be done whether or not a DFM is used.
Phil Billingham, former head of business consultancy at ThreeSixty, said “one of the issues is that people have not understood the role of an independent”. He pointed out that independent advisers would need to have robust research methods in place, but would not necessarily need to analyse every individual product.
Providing an outsourcing agreement which covers evidence of the FSA standards was the third most popular answer collected by the white paper; 27 respondents out of 270 thought this would demonstrate that a DFM is in the best interests of the client.