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Proper risk assessments

Any reputable IFA, like Enable of Bishop’s Stortford will want to be sure that any investment or wealth management clients have fully addressed their attitude to risk. Where genuine financial planning is involved a box-ticking ‘regulation-lite’ solution is not appropriate.

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The FCA has also made it abundantly clear that assessment of the client’s capacity for loss is the crucial element in the investment advice process. Chris Gilchrist, a contributing author to Taxbriefs Advantage and edits The IRS Report says- “ It is intuitively obvious that ‘How much can you afford to lose?’ Or something like it, ought to be the starting point for professional investment advice. How someone feels about a loss is a secondary question, which most people will not be able to answer accurately until it happens.”

For this reason, he has never been too keen on attitude to risk questionnaires. “The appearance of academic objectivity vanishes when you understand that for a psychometric questionnaire to be valid, it must be completed independently (no interaction with adviser or spouse) and must include only attitudinal questions.”

Gilchrist suggests; “One of the best ways of improving investment outcomes is to get people to talk freely about their aims and expectations. I am sure most professional advisers treat a risk questionnaire as a jumping-off point for what can often be deep and meaningful discussions.

A questionnaire that prompts such a discussion may meet the test of improving advice and investment outcomes. But it can still fail the iceberg test: the risk of challenges to investment suitability and recommendations several years after the advice was given.” If you want to find out how Enable’s Independent Financial Advisors risk assess for genuine financial planning the best way is to talk to us.

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