Financial Standard Comments - Advice frameworks need an overhaul

Comment by Veteran Adviser ()

Veteran Adviser () — Fri, 01 Jun 2012 15:11:19 +1000

For some years our business has used an 'objectives' overlay across the traditional risk profile questioning to assist in developing a workable risk profile outcome.
However, these days when we go through a risk profiling questionnaire with a client the questions just seem stupid. We are going to rework the whole risk profiling excercise now to come up with something that makes sense to the client AND us

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Comment by financial ninja ()

financial ninja () — Fri, 01 Jun 2012 15:16:58 +1000

Interesting article but it doesn't address the fundamental issue that these types of metrics are static models and ignores that risk tolerances change according to available information through the media. Also, tail events (eg GFC) cannot be accounted for in these types of risk measures.
We definitely need 'something' to measure a client's tolerance and start the risk/return conversation but there also needs to be some serious conversations and education about how the client's thoughts WILL change over time.
Pre-GFC many clients were very risk tolerant but a few years after are suddenly sueing advisers for putting their money into investments that now don't match their risk tolerance!

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Comment by former (old) adviser ()

former (old) adviser () — Sun, 03 Jun 2012 10:37:30 +1000

My memory of the issue is that risk profiling had an emphasis on product solutions. This is why it fails. The emphasis should always be on service solutions - which of course relies on proactivity from an adviser - something most are not all that keen on.

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