Investments  

‘Due diligence is vital for risk-rated funds’

The sales and marketing director for financial planning software provider eValue said using the funds without “thorough research across a client’s entire profile” was “fraught with danger for clients”.

Ms Hall repeated calls made by eValue in 2012 for advisers to ensure they undertake their own due diligence when recommending risk-rated funds.

However recent statements from the FCA suggested that proper due diligence was still not being undertaken.

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Last month Rory Percival, technical specialist for the FCA, said that the regulator was concerned about adviser due diligence on investments and added that risk-rated funds could not be used as a shortcut to determine client suitability.

Ms Hall said: “One of the biggest issues advisers face is matching their client’s risk profile with suitable funds and the FCA is absolutely right to raise concerns about the use of risk-rated funds.

“The riskiness of a fund depends on term and variability in risk is not same for all funds.”

Adviser View

Nick Lincoln, director of Hertfordshire-based Values to Vision Financial Planning, said: “I don’t use risk-rated funds but if I were to I would ensure that I looked under the bonnet at the underlying structure. Just because something is in a cautious sector does not mean it should be there.”