Advisers expectant of risk suitability backlash
A survey of Australian wealth managers has revealed their fears around clients making compensation claims after failing to understand risk suitability.
Conducted by behavioural finance firm Oxford Risk of 100 wealth managers who managed around $232 billion, it found over half (58%) expected pressure to compensate clients would increase over the next five years.
This had been exacerbated by the recent market volatility, rising inflation and interest rates which meant clients may have received lower returns than they were accustomed to.
Some 35% said their clients had made impulsive decisions to the detriment of short-term plans and 34% had bought high and sold low.
Some 77% expected action from the regulator over the next five years to require them to better understand risk tolerance and suitability.
Bianca Kent, head of client and strategy, Australia at Oxford Risk said: “Investment markets have been highly volatile in the last three years and many clients will inevitably be disappointed with their returns.
“It is worrying however that so many wealth managers fear they will face compensation claims over their advice and particularly worrying that it will focus on a poor understanding of client risk profiles.
“There is a widespread expectation from wealth managers that there will be tougher regulation on the issue, and we would urge them to act now and get ahead of any changes in regulation.”
AUTHOR
Laura Dew
Recommended for you
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
