Risk management is the basis of the relationships we have with our clients.

Each client begins their journey by completing an attitude to risk questionnaire in order to establish their risk profile. Their financial adviser is then entrusted with identifying appropriate investments that meet the agreed risk profile and the client’s capacity for loss. An appropriate investment provides a client with the best chance of achieving their financial objectives whilst only ever subjecting them to the level of risk agreed at the outset.

The FCA have recently stated that “firms need to do more to ensure that the composition of the portfolios they manage, truly reflects the investment need and risk appetite of their customers”.  This is a perpetual obligation. It is not sufficient to identify a solution that may be suitable on day one, and potentially expose a client to additional risks later down the line. It is an ongoing responsibility which requires relentless monitoring of financial markets coupled with extensive knowledge of exactly how these markets can impact clients’ portfolios. This impact could materialise in the form of portfolio returns, or more crucially, in terms of the risk clients are being subjected to in order to generate those returns. Whilst it seems obvious that our clients should be at the heart of every decision we make as an industry participant, they are often not fully aware of the types of risk they are being exposed to.

IFAs have never been presented with a wider range of investment solutions for their clients. Simultaneously however, there have never been as many different marketing strategies being employed by providers. These strategies often seem to mask the true cost of owning a portfolio as well as the true impact a wide range of portfolio risks could have on a client’s return and the level of risk they are exposed to.

There is no defence against a complaint citing an inappropriate level of portfolio risk. However, many IFAs have probably seen their clients benefit from this exact scenario without knowing it over the past decade. The landscape of our industry is shifting and there is a real and present danger to IFAs who may be recommending inappropriate investment solutions to their clients.

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