Here's what you need to know about the regulatory requirement of assessing client risk tolerance in the United Kingdom, and how Stackup helps you meet it
In the U.K. the requirement for advisors to assess their client's risk tolerance is set out in MiFID's Article 25
Article 25 of MiFID requires that an investor’s risk tolerance and ability to bear losses are assessed so that the firm can recommend investments that are suitable.
The same requirement is outlined in the FCA's harmonised Conduct Of Business Sourcebook (COBS) 9.2.1R, which requires that information is gathered on the client’s “risk profile”.
82% of the risk profiling tools reviewed by the FSA were found to have “weaknesses which could, in certain circumstances, lead to flawed outputs.”
Key deficiencies of surveys reviewed by the FSA included poor question design and misunderstanding among advisors of the constructs being measured by the tool.
In the their biennial review, the Financial Services Ombudsman found that 199 of the 366 cases that failed suitability assessments were due to investments not meeting “the customer’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 the U.K due to the broad scope of incorrect assessments to lead to poor consumer outcomes. MiFID writes extensively on suitability with this in mind.
of FCA reviewed tools were deficient
complaints about discretionary accounts in 2017
of suitability failures were due to incorrectly assessed "attitude to risk"