Consumers’ risk appetites – a hanging issue

What, asks Adam Samuel, is the hottest compliance topic for firms offering investment advice? The answer: risk. The Financial Ombudsman Service repeatedly refers to risk when discussing complaint cases. It is the primary ground for upholding endowment claims. It forms the basis of almost every complaint about zeros and the vast majority of other investment complaints. The problem simply put is that the product recommended does or did not fit the customer’s attitude to risk. Complaint handlers, says Mr Samuel, particularly at FOS, make this pronouncement with the severity of the old black-hooded judges sentencing murderers. How then is the adviser to avoid the noose?

Adam Samuel BA LLM MSFA MAQ, compliance and complaint handling consultant and trainer, can be contacted on tel 020 7586 1938; email AdamSamuel@aol.com, website www.adamsamuel.co.uk

There is a strange resemblance between murder cases and problems with investment risk. In both cases, the crime concerned is barely described in any rules or statutes. Parliament has never fully defined murder. No regulator has ever articulated what is meant by risk or an attitude to it. A reading of Ombudsman News might wrongly give one the idea that it is just a question of the fact-find listing the relevant attitude on a scale of say 1 to 10 and then deciding whether the product recommended matches it.