Percival warns advisers not meeting FCA rules

Percival warns advisers not meeting FCA rules

Most financial advisers are not meeting the Financial Conduct Authority's expectations on capacity for loss, Rory Percival has warned.

Speaking at the Personal Finance Society's conference on Friday (November 23), the regulator's former technical specialist said advisers should not leave it up to their clients to determine what their own capacity for loss is.

He said: "If you are asking the client what their capacity for loss is, you are not meeting the FCA's expectations because you are not getting the right answer.

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"The client, in most cases, cannot tell you what their capacity for loss is. They find it difficult to divorce their emotional response to loss.

"I have seen that question asked in a lot of fact finds and I have never seen them give the right answer."

Mr Percival said when clients answered questions about capacity for loss, their answers often spoke about attitude to risk rather than addressing the question at hand.

He said: "They cannot sit there and answer the question, so don't ask them what they cannot tell you.

"Instead, ask them what they do know, which is how much income they need to maintain their standard of living."

Mr Percival said if advisers wanted to get the issue of capacity for loss right, they would have to use cash flow planning.

He said not enough advisers were using cash flow planning and said there were many core questions advisers could not answer without it, such as how much income a client should take out of their pension when they are in drawdown.