The letter was sent to wealth management CEOs after the FSA conducted a sample review of client portfolios and found 14 out of 16 firms posed a medium or ‘medium-high’ risk of detriment to their customers.
The FSA did not specifically mention advisers in its findings, but Skandia says advisers should be aware of the warnings given over risk assessment and record keeping. The key topics on which advisers should concentrate, the firm suggests, involve:
- A clear understanding of a customer’s attitude to risk and evidence that this has been discussed with and agreed by the customer.
- A robust and repeatable investment process that can be applied consistently
- A clear range of investment solutions
- Regular portfolio reviews in order to monitor asset allocation.
“It is clear that risk assessment and record keeping is high on the agenda of the FSA. The ‘Dear CEO’ letter is the latest in a number of clear signals that understanding a client’s attitude to risk and loss, and matching customer portfolios to this risk level is essential,” said Graham Bentley, head of UK proposition at Skandia..
“Many advisers are already doing this successfully but processes can always be improved, especially as risk profiling tools and methodology evolve in line with guidance from the regulator.”
