Assessing investment suitability
Mapping solutions to a client's financial objectives, risk profile, and capacity for loss
Reliance on subjective assessment of a client's attitude to risk, broadly defined fund sectors, or on simple measures such as volatility has led to retail investors experiencing outcomes which have fallen far below expectations.
Retail financial market regulators such as the FSA and SEC are increasingly concerned that investment recommendations too often fail to meet the financial needs of customers and in particular, the customer's capacity for loss.
In the words of the FSA’s guidance paper, FG 11_05:
Although most advisers and investment managers consider a customer’s attitude to risk when assessing suitability, many fail to take appropriate account of their capacity for loss.
In assessing investment suitability, firms should ensure that:
- They have a robust process for assessing the risk a customer is willing and able to take, including assessing a customer’s capacity for loss
- They have a robust and flexible process for ensuring investment selections are suitable given a customer’s investment objectives ”
Regulators are adopting a more assertive approach, raising the compliance bar and setting clearer expectations as to what firms must do to avoid regulatory action.
Our Solution
Barrie & Hibbert’s suite of Investment Governance Services allow our clients to align investment solutions with clearly defined risk targets, and to build a process for assessing suitability which meets more stringent compliance requirements. Our Wealth Scenario Generator is a financial projection engine which enables advisors and distribution platforms to deliver market-leading financial planning and risk illustration tools. With the Wealth Scenario Generator, advisors and customers can understand the risk of potential loss in any investment option, select investments which match customers’ capacity for loss, and record a clear audit trail of the suitability process.
-
-
A Case Study with JP Morgan
-
A Case Study with Octopus Portfolio Manager
Benefits
Working with Barrie & Hibbert to enhance your drawdown review service:
| Objectivity | Provide a clear demonstration that your proposition complies with regulatory guidance. |
| Independence | By working with the market-leading risk modelling specialist, you are in a stronger position to demonstrate the validity of your products and investment suitability process. |
| Competitive Differentiation | Demonstrating a “best-practice” approach to product design and investment governance provides a clear competitive differentiator. Our model coverage enables clients to incorporate a wide range of alternative asset classes, structured products. |
| Business Retention | Enhance the quality of product sales, increase the likelihood of meeting customer expectations, provide support for ongoing client management and improve retention. |
| Consistency | Develop a framework for assessing investment suitability which consistently spans different distribution channels and different lines of business: investment, pension saving, and retirement income. |
