Advisers’ assessment of capacity for loss is a greater concern then their risk profiling of clients, Rory Percival has said.
The former Financial Conduct Authority technical specialist was speaking ahead of the publication of his guide on risk profiling.
Mr Percival was following up the guidance which the FCA’s predecessor, the FSA, published in 2011 on risk profiling.
One of the conclusions of the 2011 review, which Mr Percival was involved in, was that advisers needed to use risk profiling tools as a “basis for discussion” with the client rather than relying on them too much.
But Mr Percival, now an independent consultant, said his recent research gave him the impression advisers had understood this point.
He said: “I have got more concerns about how they deal with capacity for loss and I think generally standards in that area are much poorer.
“I talk about capacity for loss in my guide because it is related but from my experience of having looked at quite a lot of files it was this that was quite materially the area of poorer standards.
“There was a lot of discussion at the time about risk profiling being the basis for discussion and it was one of the key points that did get through so there is a good understanding about it.”
Before leaving the FCA Mr Percival was involved in the regulator’s suitability review, published earlier this year, which found some advisers were still failing to offset the shortcomings of risk profiling tools.
Mr Percival’s guide looked into some of the strengths and weaknesses of several risk profiling tools and how advisers could mitigate them.
The tools the guide looked at were A2 Risk, EValue, Dynamic Planner, FinaMetrica, Morningstar and Oxford Risk.
The guide also provides Mr Percival’s comments on these tools as well as general comments on how advisers should go about the risk profiling process.
Mr Percival said the risk profiling tools had made noticeable improvements in cutting down on their use of jargon but he said each had their “limitations” which advisers need to mitigate.
One of the issues he identified was that four of the six tools provided asset allocations alongside the risk profile which could be different even for the same client.
Mr Percival said: “The mapping piece is perhaps one of the areas where there is more work merited but it’s one area that people need to think about.”
The guide will be published next week and will cost £250 plus VAT.
damian.fantato@ft.com
