Just over three-quarters (76%) of European wealth managers expect regulation to become tougher on understanding their clients’ risk suitability, according to research from Oxford Risk.
This expectation comes as worries grow among advisers (67%) that they will be under pressure to pay compensation to clients whom they didn’t do enough to understand their risk suitability.
The Oxford Risk survey of 150 wealth managers in the UK, France, Italy, Spain, and Ireland, also found just 9% don’t believe they won’t come under pressure to pay compensation where they didn’t do enough to understand clients’ risk suitability.
This is surprising given that an overwhelming 67% of advisers surveyed previously still rely mainly on their own intuition to assess their clients’ risk suitability.
Some 53% believe regulators provide enough behavioural finance guidance on understanding clients’ risk suitability. In addition, 16% strongly agree, 26% are neutral on the issue, and 5% disagree with this view.
Greg Davies, head of behavioural finance at Oxford Risk, said: “Managing the investor is just as, if not more, important as managing their investments if the best outcomes are to be secured.
“Suitability – ensuring that investment solutions are right for individual clients’ circumstances and preferences – is the all-important concept in investment advice and a big part of this is having a detailed understanding of each client’s financial personality.
“An increasing number of wealth managers are alert to this but aren’t necessarily equipped with the right tools or training. Whether this is best achieved through increased regulation is still up for debate, but ultimately getting this right will not only have a huge positive impact on clients, but also on advisers themselves.”
