Suitability concerns over risk tools ‘too crude for clients’

Suitability concerns over risk tools ‘too crude for clients’

Advisers could be failing clients over suitability requirements due to an inherent miscalculation included in commonly-used attitude to risk and cashflow modelling software.

Tools used to assess clients’ attitude to risk and cashflow, are “too crude” to accurately plan a client’s income in retirement, particularly with regards to income drawdown, according to pension consultancy Hymans Robertson.

It warned the regulator could uncover suitability failings further down the line from people running out of money in retirement or not achieving the retirement they wanted.

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In particular, the firm, which has a background in defined benefit actuarial work, said risk profiling tools failed to take a long-term perspective, while cashflow modeling relied too heavily on data from the Office for National Statistics (ONS).

The firm had pitted its own data ("Club Vita") against consumer research carried out by Opinium in September last year and found gaps in life expectancy predictions as wide as 20 years.

The table shows the consumers’ views on how long they will live and the discrepancies with the real analysis of life expectancy from Club Vita:


Baby Boomers (1946-1964)

Generation X (1965-1979)

Millennials (1980-1994)








Club Vita Median life expectancy age







Consumer Survey* Median age to which people expect to live














Chris Noon, partner at Hymans Robertson, said: “Most advisers substantially underestimate how long clients live because they are using crude stats.

“The tools and infrastructure available to advisers to support the drawdown conversation are poor. Ultimately there could be a suitability issue there."

Rory Percival, former technical specialist at the Financial Conduct Authority (FCA), who now runs his own consultancy, also pointed to inconsistencies in the way some tools determined risk ratings and asset allocations.

This was something the regulator could turn its attention to, he said.

Mr Percival advised against using life expectancy in a cash flow planning.

 “You want to run a plan to make sure you don’t run out of money to an age you are sure you won’t be around at anymore,” he said.

Hymans is launching its own white label tool with Parmenion, allowing advisers to incorporate features such as postcodes into the client demographic data used to determine life expectancy.

Terry Huddart from financial services consultancy the Lang Cat, who has reviewed the tool, said advisers were looking for new options in the market.

He had consulted a panel of 36 advisers and found 72 per cent felt their current tools were insufficient. They also thought tools were unable to replace the level of detail arrived at by speaking to a client face to face.

The Lang Cat

Mr Huddart said: “A lot of people were expecting a raft of new software come to market after the pension freedoms.

“[But] there seems to be a broader group of advisers that don’t feel they are being served well enough.”

European regulation the Markets in Financial Instruments Directive, or Mifid II, has also raised the bar for adviser tools.

The rules, effective on 3 January, demand all the tools advisers choose are fit-for-purpose, "with any limitations identified and actively mitigated [by advisers] through the suitability assessment process.”