BBC's Panorama highlights the industry's greatest challenge
FSA writes to wealth manager CEO's
Last night's Panorama programme - 'Can you trust your bank' provided ample evidence that, in their words "Investors' attitude to risk is the most important thing for banks to get right". While the spotlight was turned on banks, it is clear that the issues raised touch the whole of the retail wealth management industry. The FSA today wrote to CEO's of wealth management firms focusing on exactly this.
Panorama brought to life in the way that only TV can the difficulty ordinary consumers have in articulating what they want from their savings and how advisers' often struggle to explain risk. It was hard to argue with their conclusion that risk profiling is not well explained and often confusing particularly to savers and investors with low levels of experience. As one retiree put it when asked whether he made the type of investment he wanted clear; "I certainly didn't make the point clear on the type of investment I wanted, only that I wanted to be able to draw interest off the money. I don't go to the doctors and say, can you give me a lethal disease, I don't go to the bank and say, can you lose me all my money." Two years later the value of his investment had halved.
Bridging the gap between a customer's appetite for, and capacity to take on, risk and the products on sale is the greatest challenge faced by the retail wealth industry today - get it right and we help customers achieve their goals and ambitions - get it wrong and the customer can be condemned to years of heartache and potentially retirement in poverty - right at the point in their lives where they have no opportunity to correct it.
At DT we are committed to ensuring our clients have the best tools available in the industry to bridge that gap. Last month we went to the Plain English Campaign and had our risk profile descriptors Crystal Mark approved to ensure that when clients use Dynamic Planner, the language is as helpful and clear as possible. Our Fund Risk Profiling service helps fund managers articulate the likely risks inherent in their products and link these on a consistent basis with customer risk profiles so that they can be recommended with confidence. We believe that only by establishing both the customer's and the product's risk profile can organisations and advisers truly bridge this critical gap in our industry.
Today's FSA "Dear CEO letter" to the heads of wealth management firms says that 14 out of 16 firms reviewed were judged to pose a high or medium-high risk of detriment to their customers. Why? Reasons included inadequate risk profiling and inconsistencies between the portfolios and the client's attitude to risk.
Ben Goss - CEO
