Example of an adviser failing to confirm that a customer’s level of risk was correct
One adviser assessed the customer’s attitude to risk by asking him to read through the firm’s risk category descriptions and select the category he considered appropriate. The adviser accepted the category selected by the customer without any further explanation or discussion and recommended investment funds to match this risk profile.
We considered that the adviser had failed to take reasonable steps to ensure their recommendation was suitable as:
• the risk category descriptions failed to effectively explain or illustrate the level of risk involved.
Given these limitations, we felt the customer was unable to make an informed decision on whether
the category reflected his risk profile; and
• the adviser failed to check whether the customer’s ‘self-selected’ risk profile accurately reflected the actual level of risk he was willing and able to take with his investment. This was particularly relevant as the adviser had identified that the customer had no previous investment experience and limited financial knowledge.