The FCA states in its ‘One minute guide to Due Diligence’ that you must present all information in a way that is “clear, fair and not misleading.”
Advisers are told by the FCA that they must consider the amount of knowledge their customer has, particularly regarding ‘sophisticated’ products, make sure an adequate assessment of the customers risk profile has been undertaken and recommend a product that matches this.
To ensure the way you explain risk is clear you should test your definitions with a sample set of consumers, according to Stephen Gazard, managing director of Sesame Bankhall Group.
Mr Gazard suggests advisers should pick a group that represents a mix of investment experience to make sure the terminology is consistent, does not use unexplained jargon and offers a description in plain English making reference to real life examples.
“It is helpful to include a description of the likely assets for each risk profile, as well as projections of likely investment outcomes, both good and poor, to help consumers understand what each risk profile means in real terms.”
Simon Thomas, head of policy for Tenet, adds: “The basic rule is to make sure your client fully understands.
“Use a tool that produces a description at the end in language that a firm’s client band will be able to understand. Establish who the clients are and incorporate the correct tool and output definitions.”
