Attitude to risk
The research further found that 91% of advisers are using an attitude to risk questionnaire at the outset of discussions with clients about their risk appetite, up from 76% in the 2016 study.
However, only a quarter are using a third-party risk mapping tool to ensure the risk in portfolios matches the attitude to risk questionnaire (ATRQ).
FE says this may be due to the fact that half of advisers think third-party risk mapping tools have limitations, describing them as “simplistic” and “too generic”.
When it comes to those who are using risk mapping tools, over half (52%) have not reviewed the underlying mapping methodology.
Rob Gleeson, head of research at FE, said: “Not enough advisers are being inquisitive enough when it comes to the components that make up their investment proposition.
“Those choosing not to use third-party risk mapping tools need to make sure they have the competence to lift the bonnet on their investment risk tools and ensure they seamlessly match up,” he said.
Additional report findings include:
- 90% of firms are reviewing all aspects of their investment proposition at least annually, with 39% doing so twice a year.
- 53% of advisers have reviewed their ATRQ in the last 12 months.
- Two-thirds (67%) of advisers are ignoring expert recommendations that firms should take an aggregated firm-level sample of ATRQs from a minimum of 30 files to see whether significant trends were shown to exist within firms.
- There is a decline in advisers’ usage of risk targets when building a portfolio, with 44% saying they never do, compared to 31% not using risk targets in the 2016 survey.
- The proportion of advisers not checking whether their risk-targeted funds are hitting their target is also on the increase, with more than two-thirds (67%) not knowing the percentage of risk targeted funds in their portfolios that came within their targets last year. This is up from 57% in FE’s 2016 survey.
- 31% of advisers say they intend, over the next 12 months, to put nearly all (90%) of their clients’ investments in a single investment proposition, down from 40% two years ago, with in-house model portfolios responsible for half this figure.