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‘Dear CEO’ letter has far reaching implications for all advisers

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The UK FSA’s recent ‘Dear CEO’ letter sent to wealth managers about suitability of client portfolios has far reaching implications for all advisers, warns Skandia. Risk assessment and record keeping will become essential in the run up to and beyond the Retail Distribution Review.

Although the letter was sent specifically to wealth management firms, Skandia believes all financial advisers need to take heed of the warnings around risk assessment and record keeping.  The FSA’s thematic review identified an inability to demonstrate suitability because of inadequate risk-profiling and a risk of unsuitability due to inconsistencies between portfolios and the client’s attitude to risk.
 
Skandia believes that these findings provide welcome clarity about what is expected of advisers around risk profiling and client suitability.  Four key areas for advisers to focus on are:
 
A clear  understanding of each customer’s attitude to risk and evidence that this has  been discussed with and agreed by the customer

A robust and  repeatable investment process that can be applied consistently across all  customers and eliminate inconsistencies between portfolios and the client’s  attitude to risk

A clear range  of investment solutions that cater for different customer requirements  

Portfolio  review to regularly control asset allocation and monitor the need for  portfolio changes

To help advisers ensure their investment process is fit for the future, Skandia has developed two new adviser services:

RDR Readiness Centre (www.skandia.co.uk/areyouready <http://www.skandia.co.uk/areyouready> ), and

A Risk Discussion Tool for advisers to explain investment risk (www.skandia.co.uk/riskdiscussion <http://www.skandia.co.uk/riskdiscussion> )

Graham Bentley (pictured), head of UK proposition at Skandia, says: “It is clear that risk assessment and record keeping is high on the agenda of the FSA. The ‘Dear CEO’ letter is the latest in a number of clear signals that understanding a client’s attitude to risk and loss, and matching customer portfolios to this risk level is essential.  Many advisers are already doing this successfully but processes can always be improved, especially as risk profiling tools and methodology evolve in line with guidance from the regulator.  We believe that our RDR Readiness Centre provides a range of informative and entertaining materials such as videos, articles and links to third party resources that can help advisers define what is right for their business.”
 

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