Percival said the term was misunderstood, and the output of capacity-for-loss assessment questions was sometimes ignored completely intermediaries, who may simply rely on the risk score issued by tools instead.
Capacity for loss must be accessed as a clear number – either an absolute sum or future income level – that can be tolerated before the client’s life is substantially impacted.
Any disparity between the risk score awarded and capacity for loss must be discussed with the client and resolved, Percival said.
“This is where I wouldn’t be surprised if the majority of firms are failing to satisfy the regulator’s requirements,” he said.
Percival is now an independent consultant. He said he would publish his full investigation into risk tools, which he said was likely to name the tools assessed individually, in July.
The specialist spent 20 years as a financial adviser before becoming the face of the FSA and FCA for financial intermediaries for a 10-year period from 2006.
