For a man who left his job at PwC in the 1990s to start what was, at the time, the UK’s fourth financial website – effectively a robo-advice business called Sort – before selling it during the tech boom, risk and reward are old friends.
At Distribution Technology, the firm Ben Goss started in 2003 with the proceeds from the sale of Sort, they are more than friends, they are the lifeblood of the business.
An understanding of risk has always been integral to the financial services industry, but for many years it played second fiddle to the prospect of returns in the risk-return double act; largely, one could argue, because most asset allocation models had a built-in downside shock absorber in the form of the bond market.
And, perhaps more tellingly for the financial services sector, most people’s pensions were tied up in defined-benefit schemes in which the risk of loss fell on the shoulders of companies rather than individuals.
That landscape has now changed fundamentally on both counts and, with it, the needs and demands of clients and advisers. Goss believes Distribution Technology is well placed for this new world.
“Since the FCA suitability paper published in 2011, retail financial advisers have embraced suitability and the assessment of risk, driving the demand for risk-profiled funds.
“That FCA focus is now very much on wealth managers as well, meaning they must ensure they can properly demonstrate suitability to clients.”
As a result, he says, there is a growing demand for services that make the provision of investments that remain suitable over time much easier, an offering that falls directly into Distribution Technology’s wheelhouse.
The proposition
The core of the business, says Goss, is the firm’s financial planning tool, which is used by more than 6,000 financial advisers, wealth managers and planners to help profile a client’s capacity for risk and match that to a risk-based cash flow plan.
The other part of the operation is the risk-profiling business, wherein it profiles the funds and model portfolios of about 90 asset managers. Goss is quick to point out, however, that the firm is not a ratings agency.
“We don’t tell anyone how good or bad an investment is. We assess the risk of their funds or portfolios. For example, we will look at a set of model portfolios and assess their risk on the same basis that we help the adviser to assess the risk that a client is willing and able to bear.”
The benefit of this to the adviser, says Goss, is that it allows them to do a direct translation from one to the other, which helps with the initial and ongoing suitability, whether it be choosing a fund, a model portfolio or even a discretionary solution.
Despite his roots in the robo-advice world, Goss says the adviser is best placed to make use of these benefits.
