Rory Percival’s ‘Risk Profile Tools’ Guide

Rory Percival’s ‘Risk Profile Tools’ Guide
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EValue has today welcomed Rory Percival’s guide on risk profiling but has highlighted that wealth managers and advisors need to consider how to link the results of risk profile questionnaires and other client circumstances to investment and asset allocation recommendations.

Key takeaways

1

The guide offers suggestions to help advisers meet the upcoming MIFID 2 requirements.

2

The goal of ensuring advisers deliver good consumer outcomes should be paramount

3

Mapping investments to risk profile questionnaires needs to be further addressed

Commenting, Paul McNamara, Chief Executive at EValue says:

“Risk profiling alone is not enough. Advisers and their clients also need to explore and understand appropriate asset allocation strategies to support suitable recommendations.

“The report correctly identifies that the mapping of investments and asset allocations to the output of risk profile questionnaires is sometimes problematic and could nullify the good work done by an adviser using a risk questionnaire, but we are disappointed that the guide leaves this area out of scope.

“Beyond the observations in the guide, further work is required to adequately address the important step of matching asset allocations and investments to the output from risk questionnaires and wider suitability criteria.  The report only scratches the surface of this complex area. What is required is an in-depth analysis of the risk characteristics of different asset classes, the diversification benefits available within a multi-asset portfolio and how such portfolios should then relate to client needs.

“Advisers need to review this area since inadequate risk mapping of investments can undermine the results obtained from a robustly developed risk questionnaire.  This is why EValue makes available a linked projection and sensitivity analysis of recommended asset allocations, comprising a wide range of diversified asset categories, as part of the tools it provides to advisory firms. Through this linked projection, both advisers and wealth managers can better understand consumers’ risk preferences and goals in order to suggest more appropriate investments.”


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