The process of using a tool should ensure that the output report is discussed with the client.
Paul Resnik, co-founder of FinaMetrica, says this report should ensure that any inconsistencies in answers are explored and that the final score is agreed with the client or amended and agreed with the client.
The implication of the score and the relevant asset allocation the client is advised to follow should be explained with the client along with some form of stress testing/scenario testing, he adds.
The discussion should conclude with the client expressing an understanding that the portfolio meets their objectives, the risk required to meet these objectives and their capacity for risk, Mr Resnik says.
Ultimately Vaughan Jenkins, financial services expert at PA Consulting Group, says ensuring clients understand the risk they are taking on may require a process of client education and testing for understanding, using additional questions and affirmations on an ongoing basis.
In practice he says this may not just be a defensive move by the adviser but a source of added value and coaching to the client on an ongoing basis in the light of changing market conditions and personal circumstances.
