The risk scales advisers are using are “absolute bunkum”, according to James Mahon of investment management firm Church House.
The company’s chief executive said the models setting out which assets are riskier than others, and which regulators say advisers must use, had been made redundant by the actions of central banks.
Since quantitative easing, Mr Mahon said, assets such as government debt, including medium dated, longer dated and index linked versions, were “all risk and no reward”.
He said: “The one to 10 risk scale is now mainstream but this is absolute bunkum because that model only works if things are prices in accordance with it.
“Central banks have rigged the market. After the financial crisis it was correct for them to be in the market but that needs to go as soon as possible.
“What they have done is they have removed the price transparency mechanism.”
Mr Mahon pointed to the fact that a 15-year Treasury gilt with a 4.25 per cent coupon had in November a redemption yield of 1.5 per cent.
Meanwhile a 50-year Treasury gilt with a 2.5 per cent coupon had a redemption yield of 1.8 per cent.
Mr Mahon said the issue was also affecting corporate bonds, citing a British American Tobacco £650m issue of 2.25 per cent bonds due in 2052 which now have a yield of 0.79 per cent.
He said: “The BAT example is a great one. Was the purpose of QE to allow a tobacco company to refinance itself at nil cost?”
