Do you ever remember using the excuse ‘but everyone else was doing it too’ when caught doing something wrong at school, only for the teacher to retort with ‘well if they stuck their hand in the fire would you do that too?’. At that point you would have to admit you wouldn’t. The interesting lesson here is you know sticking your hand in the fire is a bad idea, so why be influenced by the herd mentality?
The use of cobbled together third-party processes to form a suitability process makes me think of that excuse from school. Everybody is doing it and turning a blind eye to the problems it creates, but hey safety in numbers right? Third-party Risk Profiling tools, provided by unregulated firms, forced together with different investment management processes is a problem. So many things need to align to get a robust process that works. If it all goes wrong, it is the adviser who will be up in front of the headmaster claiming it can’t be their fault as everyone else was doing it too.
Forearmed is forewarned. So, we at PortfolioMetrix have written a whitepaper entitled Risky Business: why the regulator is right to be worried about risk mapping. In it we outline all the areas where you should avoid assuming something is okay, when actually it isn’t:
Be in no doubt that when it comes to suitability, the UK regulator holds advisers responsible for ensuring their clients’ appetites to risk align with the risks taken with the investment portfolio. Using cobbled together third-party processes to form a suitability process is a sure-fire way to getting your fingers burned!