Demand for risk assessment ‘doubled’ in four years
Client demand, regulatory oversight seen as drivers for growth in risk profiling market
Providers of risk profiling services have seen demand for their products double in the past four years as advisers seek to improve their offering for clients, a risk expert has said.
Daryl Roxburgh, global head of BITA Risk, the risk assessment tool provider, said the way financial planners and asset managers approach risk has grown dramatically in since the economic downturn started, driven both by client demand, competition in the market and regulatory requirements.
“Around 2007 and 2008 the firms buying our products started to be influenced as much by regulation as a driver as good business practice,” he said. “In the past two years regulation has become a key driver as firms seek to meet their compliance goal.”
In the FSA’s guidance paper on assessing suitability, released in March, it said advisers needed a clear and robust way to determine a client’s risk level and, where profiling tools were being used, their risks need to be considered and any shortcomings mitigated.
Jon Wingent, investment client director at Close Brothers, said risk assessment has moved on from the tick-box exercises seen a few years ago and have moved towards coming up with a balanced client approach, but due diligence requires the use of questionnaires and profiling tools.
Client demand is given as one reason for the shift, caused mainly by cautious appetites during volatile and uncertain markets. As investors became more worried about the amount of risk they are taking, advisers have taken notice and adopted more robust risk-assessment processes.
Roxburgh said this focus on due diligence has meant the market for risk profiling tools is bigger than ever.
“What we are finding is that we are seeing firms now that put in simplistic profiling solutions or temporary fixes a few years ago, coming back to look for a more comprehensive and better structured approach that they can integrate within their business processes,” he said.