It’s been a bugbear for PortfolioMetrix for many years so we’re delighted the FCA has decided to take action to tackle the disconnect that exists between model portfolios and client risk profile labels.
As reported in New Model Adviser, the FCA has realised that investors could be being exposed to risk levels either above or below those they agreed with their advisers. This is not just bad news for the investors, it also adds business risk to advisers, who will have chosen the portfolios in good faith due to the labels making it appear the choice should be straightforward.
To help explain the issue, back in March this year PortfolioMetrix produced a paper detailing the issue and why advisers need to tread very carefully when recommending model portfolios to clients.
It highlights that portfolios with names like ‘balanced’, ‘cautious’, ‘defensive’, ‘aggressive’ are only useful for end clients once an adviser has identified that the fund/model being recommended is actually consistent with its descriptor from a risk perspective and that it has historically delivered robust returns commensurate with the actual risk it has taken.
Now the FCA has got involved, we hope it won’t be long before this labelling mismatch issue is resolved but it’s obviously not going to happen overnight. In the meantime, any advisers who have concerns and want to find a regulator-friendly solution should contact PortfolioMetrix.