Inconsistency with risk profiling could result in hundreds of thousands of pounds in difference with client's money, research has found.
A new report from NextWealth found 57 per cent of advisers rely on third party risk ratings when making suggestions to clients, while 40 per cent use third party risk tools to see if investments are suitable for clients.
It also found advisers were not as confident talking about risk with clients in the decumulation stage of life, compared with accumulation.
Heather Hopkins, managing director of NextWealth said: "One of the big issues for advice firms is lack of consistency.
"Tools like cash flow modelling are used but risk is bespoke, so it’s easy for significant differences to occur. As one planner told us, his risk assessment for a potential client was at an 8 but a competing firm put the same client at a 6.
"Over 30 years this could equate to hundreds of 1000s of pounds in difference on a relatively modest amount of money. Clearly this is not ideal and it’s something that needs to be addressed.”
The report was based on a survey of 200 advisers, 10 interviews with financial advice professionals and six with risk profilers.
Hopkins added risk questionnaires are also not suitable for clients in the decumulation stage of life.
She said: "The vast majority of attitude to risk questionnaires are designed to measure a client’s acceptance of risk to their capital as it grows towards an objective.
"They are not necessarily suitable for the decumulation phase where there is a need for a two-dimensional scale looking at the client’s ability to accept volatility of both income and capital."
Hopkins said some risk tools have tried to address this but advisers still face problems.
She added: "Attempts have been made by some risk tools to bridge the gap but for some reason they haven’t solved the problem for advisers."
tara.o'connor@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
