Increasing regulation a concern for most IFAs, Thesis Asset Management finds

Almost 60% of advisers see the increasing impact of regulation as quite or very important, according to a survey conducted by Thesis Asset Management.
One aspect of regulation at the forefront of adviser minds is the need to evidence suitability of investment recommendations. Advisers are often concerned about whether they can adequately demonstrate that their process for establishing investment suitability is robust, and many IFAs use third party risk profiling tools to illustrate and support their recommendations.
Despite this, the FCA’s keen focus on suitability understandably makes advisers wonder if they are doing enough to satisfy the regulator.
This widespread concern was reflected in a presentation given by the FCA’s former technical specialist, Rory Percival, at Thesis Asset Management’s annual IFA conference. Percival used the content of the FCA’s Finalised Guidance 11/5 paper on assessing risk and suitability, and reframed its findings to create a series of test criteria to measure the effectiveness of a selection of risk profiling tools.
He found that there were wide variations in the outputs from these risk tools. For example, different tools were given a standard set of client data and used it to suggest an asset allocation model – in some cases the portfolios varied by up to 30% in their allocations to a particular asset class. This variation is too big to accommodate clients that have exactly the same risk profile, said Percival.
Percival will be publishing a guide later this year that analyses the strengths and weaknesses of different tools available.
Lawrence Cook, director of marketing and business development at Thesis, commented: “We cannot ignore what advisers are saying about regulation. We can probably say with some confidence that regulation isn’t going to get any less intense. Despite the improvements brought in by initiatives like RDR, it looks like regulation is still – or is still perceived to be – a creeping burden in the industry. The challenge for us is to work together in partnership to deliver for clients and help manage the regulatory workload.”
He added: “Guides like the one being created by Rory Percival will at least go some way to help advisers demonstrate that they are meeting the regulatory requirements.”
“There was consistent feedback about the importance of risk control. It is a good reminder that DFMs need to work hard to ensure they are doing just that.”
Percival presented at the Thesis conference, along with Keith Richards of the Personal Finance Society and experts in pensions, compliance and data analytics.
For more information on Thesis’s recent conference, or on the topics covered, please go to http://www.thesis-plc.com/welcome-to-thesis-asset-management/events/thesis-conference-2017/ .