NextWealth’s Risky Business report forms part of our Adviser Tech Stack series.

Financial advisers and planners employ varied methods to help clients comprehend investment risk, capacity for loss, sequencing risk, and the risk of not achieving financial goals. Some firms merely reference risk discussions in meeting notes, while others dedicate entire meetings to the topic. Tools such as attitude to risk questionnaires (ATRQs) and cash flow modelling are integral, especially for clients entering or in retirement, supported by tailored conversations.

Risk profiling is deeply ingrained in financial planning practices. Though ATRQs form a minor part, their impact is significant, heavily influencing fund choice. Clients’ risk scores are typically mapped to investment solutions, crucial for suitability. This process can frustrate product providers, who sometimes feel risk profiling fees dilute their investment expertise. Additionally, regulators are scrutinising how advisers assess the risk appetite of retired clients.

Report Objectives

This report addresses two main themes:

1. The influence of risk profiling providers on fund choice.
2. Adviser approaches to assessing risk for retired clients.

Critical Questions answered by the report

For Product Providers (Asset Managers and DFMs):

1. How do risk ratings impact an adviser’s fund recommendation decisions?
2. Are risk ratings essential for product providers aiming to distribute via financial advisers, or is there room for disruption?
3. Is there value in risk targeting? Should product providers consider the extra cost to secure flow?

For Financial Advisers:

1. What are the differences between ATRQs and risk mapping for clients in accumulation versus those in retirement?
2. Is the current risk mapping approach suitable for clients in decumulation?
3. How will adviser due diligence and assumptions on risk change based on Regulatory Information and Advice Review (RIAR)?

Methodology

This report is based on qualitative and quantitative research conducted from April 2024 to June 2024, including:

• A digital survey of 200 financial advisers.
• 10 interviews with financial advice professionals.
• 6 interviews and data requests from risk profilers.

Additionally, discussions with DFMs and asset managers helped shape the research priorities, providing a comprehensive perspective from multiple viewpoints.

You can download the sample of the report by completing the form.