Here's what you need to know about the regulatory requirement of assessing client risk tolerance in Australia, and how Stackup helps you meet it
In Australia the requirement for advisors to determine client’s risk tolerance is set out in ASIC’s Licensing Regulatory Guide 175
ASICs licensee conditions require that AFS licensees take reasonable steps to ensure their representatives comply with the "best interests duty", meaning that they act in the best interests of their clients.
Specifically, ASIC specifies that “the scope of the advice includes all the issues that must be considered for the advice to meet the client’s objectives, financial situation and needs (including the client’s tolerance for risk).”
70% of inappropriate advice claims referred to the Financial Ombudsman Service in Australia are due to deficiencies in the risk profiling of the client
In 2017, the FOS highlighted a failure of advisors to “assess the risk tolerance of … retail clients before providing personal advice”. Their investigation found this to be a systemic industry issue.
In 2018, as part of the financial services Royal Commission, the Ombudsman found that “certain risk profiling practices and procedures did not appropriately address the client’s attitude to risk.”
RiskTRACK has been statistically validated, meaning our methods will stack up to regulatory scrutiny
We offer a risk profiling system that is internally robust and externally predictive of a comfortable portfolio allocation. Our methods are academically and scientifically based and not just thrown together to tick a box.
Our reports allow you to discuss your client's risk profile with them before signing off. This ensures that they are comfortable and agree with your assessment, lowering the risk of rebuttal down the track.
Deficient risk tolerance assessment is currently under increased regulatory scrutiny in Australia as the majority of complaints received in relation to mixed asset funds are due to inappropriate advice. To compound this, disputes received by the Financial Ombudsman Service have grown by 24% since 2014.
growth in disputes received since 2014
total disputes received by FOS in 2017
of escalated FOS cases due to deficient risk profiling