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Suitability processes 'ill-equipped' to handle coronavirus

 

Standard suitability processes are "extremely ill-equipped" to handle the coronavirus crisis, according to Greg Davies.

Mr Davies, the head of behavioural finance at Oxford Risk, was appearing on the latest edition of the FTAdviser Podcast alongside Sarb Chahal, a financial planner at Sanlam.

They discussed how advisers could use behavioural finance insights to help their clients through the current crisis and what there was to learn from the impact of the coronavirus.

Mr Davies said: "The right response for each individual is very different based on a number of aspects of who that person is - based on their financial personality.

"And typically speaking the processes in advice - the suitability processes - will be focused on the long-term: what's your long-term willingness to trade off risk and return, what's your long-term capacity to take risk.

"What matters right now is not those things at all, it is aspects of people's financial personality that speak to what and how they are going to be made more or less comfortable about certain issues."

He said the current situation would require "hyper personalised" communication.

Mr Chahal added: "It is easy for an adviser, when they first meet a client, to miss their biases, to miss what this client is really about.

"Just because it is an irrational bias, that doesn't necessarily mean we can't predict it and try and head it off before it becomes an issue.

"I have had clients before say to me they are waiting for a fund to break even before they sell and advisers may miss that and think we don't need to address that, but realistically we should be there educating the client and saying the market doesn't care what your entry point is, we've got to look at whether this particular position offers you value or not."

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damian.fantato@ft.com