It is, however, the second example that deserves more interrogation.
The information on one customer’s file, the FCA said, “confirmed that she could not sustain any loss of income and capital. The firm wrote to her requesting that she reconsider and subsequently increased her risk appetite and the risk of her investment portfolio accordingly. It was unclear why the firm persisted in this way and this may have resulted in an unsuitable portfolio.”
There is no doubt that a clear understanding of client’s capacity for loss is a cornerstone of bespoke wealth management. But, equally, especially in the low growth world that many clients currently live in – a low growth world that is likely to continue for some time – a great deal more work needs to be done not only on their capacity to take risk, but more importantly their necessity to take risk.
While it may be that the firm in question didn’t document the reasons behind its ratcheting up of risk properly, or that it was entirely in the wrong, what doesn’t seem to be evident in the example is the possibility that perhaps, for this client, having no capacity for loss was not really an option.
Without knowing the specifics of the case in question it is impossible to know for sure, but with bond yields and interest rates at all-time lows and ever more clients living longer and longer, it is a question that is likely to come up more and more often and, one that is liable to require ever more nuance.
