The director of institutional sales at Thesis Asset Management said that planners must understand what lies within portfolios, particularly if they are using multi-manager funds, as the true nature of underlying investments can be “very scary”.
He said: “You cannot rely on third party tools. It is ultimately your responsibility to ensure your process is robust. In the 366 cases that the FCA looked at in its suitability report, it found an almighty number of problems among firms, which should be a cause for concern.
“Even if you’re operating passive funds, you have to apply active asset allocation, and that is why risk mapping is relevant and crucial.”
Speaking at the Institute of Financial Planning conference on 2 October, Mr Marriage said that planners have to go beyond “flawed methodology tools”, as well as a tendency to focus on time frames shorter than ten years and on a limited number of assets. This is because of a vastly changed investment climate post-2008 where “old” models no apply, he said.
When discussing the labels applied to sectors, Mr Marriage said there was major scope for mis-interpretation among clients, particularly in the cautious and balanced sectors. He said: “It is vital for clients to not get lulled into a false sense of security with these names.”
He questioned how many planners were telling clients that the poor outlook for fixed interest meant they would have take more risk.
He added that a client’s capacity for loss is the “number one” issue that has to be documented to refine an adviser’s suitability process.
“As long as you communicate with clients and document any issues, even if you have to get clients to re-do their risk questionnaires. The FCA has not provided a right way to do it, but it certainly has told us the wrong.”