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.

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.

Risk assessment

Before taking on any wealth management scheme it important to assess risk with clients and evaluate the capacity for any loss. And the Financial industries regulator the FCA's is concerned to make sure risk profiling is conducted properly and thoroughly.

One of the things that they are particularly concerned about is that there are many tools out in the market and how some advisors are using them,  they are particularly worried with respect to the weightings applied, the questions asked of the client and an over-reliance on the tool as a replacement for the adviser's view of the client's attitude to risk and capacity for financial loss.  In other words, some firms are not assessing the appropriateness of the tools and are relying on these tools to deliver a one-size-fits-all solution.

The FCA is clear that advisers must ensure the product is suitable for the client given the client's "real" attitude to risk and capacity for financial loss and ask: Does the automated tool allow for flexibility in responses? Is the tool too formulaic? Do you understand how the tool is constructed?

Are the questions within the tool contradictory? Do the advisers gather all relevant client information? What happens when the results of the tool do not accord with what the client is telling the adviser?What are your complaints telling you about the manner in which risk is assessed?

At Enable our experienced IFA’s make sure any assessment of a client's attitude to risk and capacity for investment loss is not solely determined by a risk-profiling tool but also depends on a richer understanding of any client’s needs and interests.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE