Investments 

Percival finds risk tools boosted by FCA action

Percival finds risk tools boosted by FCA action

A report by former Financial Conduct Authority technical specialist Rory Percival has argued risk profiling tools used by advisers to judge the suitability of their recommendations have improved since the regulator examined the area.

Mr Percival looked at six risk profiling tools - Oxford Risk, A2 Risk, Dynamic Planner, Finametrica, Morningstar, and Evalue - and found the issues identified by the Financial Services Authority in 2011 had been addressed.

These included questions and answers having improved, risk descriptions mostly including quantification of risk, and scoring anomalies having been addressed.

One of the areas of concern Mr Percival uncovered was the significant differences in the mapping of asset allocations.

Some of the tools which included asset allocations as part of the risk category descriptions gave results which varied significantly for the same client.

Mr Percival said: “Advisers need to be clear about the basis for the mapping of the asset allocations and be comfortable that they are appropriate for clients.

“The guide explores some important issues on this subject and advisers should be clear about these issues as they remain responsible for their investment advice.”

For example Dynamic Planner suggested that a notional client in the middle of the risk scale should have 65 per cent of their portfolio in asset-backed holdings and 35 per cent in non-asset-backed.

Meanwhile EValue suggested a split of 71.5 per cent and 28.5 per cent while FinaMetrica suggested 43 per cent and 57 per cent.

Mr Percival also provided individual assessments of each tool using a traffic light system and provided recommendations of what advisers should do to address their shortcomings.

Only one risk profiling tool – Dynamic Planner – was rated as green on the inclusion of a no-risk option.

All the tools were rated as amber on whether their questions were liable to be interpreted in the wrong way by clients.

Three tools were rated as red in one category: Morningstar for the inclusion of a no-risk option, and Oxford Risk and A2Risk for having clear risk descriptions.

A2Risk had the lowest number of green categories at five out of 11.

Mr Percival’s guide costs £250 plus VAT and is available at adviser-store.com.  

 

damian.fantato@ft.com

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