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Risk and Suitability test – part 2: what your fellow advisers said

Here’s how 30 advisers rated the risk of these two funds in the Risk and Suitability test



Fund 1: How advisers rated the fund.

Risk & Suitability Fund 2








Fund 2: How advisers rated the fund.

Risk & Suitability Fund 4









How did you compare? 

Given the available data there is no right or wrong answer to this quiz. Its purpose is to illustrate how perceptions of risk can change given the available information and the importance of deep diving when analysing a fund’s make-up and strategy. In fact these two funds are the same fund, but in the second diagram more information is provided allowing greater assessment of the risk being taken by the fund.

Mike Webb, chief executive of Rathbone Unit Trust Management, said the risk assessment exercise was devised to help demonstrate how perceptions of risk can differ and why, with the FCA focussed on the continued suitability of investments in relation to investor risk profiles, it is necessary for financial advisers and fund managers to always have risk in mind.

This, he suggested, will likely require many fund managers to change the way they run money, moving away from chasing peer performance and quartile ranking to a better alignment of their management skills with the long-term needs of investors. This in turn will require that they manage the risk in a fund to ensure it stays within the risk profiles into which advisers and investors have bought.

Webb said: “Risk-rated models give a snapshot of the risk attributed to a fund, which is then matched to a client’s risk level. Risk targeted funds are completely different. Whilst they do not guarantee that capital can be lost, they target an explicit level of risk which both investor and manager are willing to take.”

He added: “Risk-rated models are backward-looking and are not prepared to predict the movement of asset classes or global markets. Given that the majority of advisers we spoke with only review clients’ portfolios annually, and that we live in volatile times, advisers could be exposing themselves to several challenges by using this method.”

The task for fund managers like Rathbone, he said, is “to show advisers why a fund which seeks to meet a specific outcome may be a far more powerful tool in the long term, compared to a fund which targets top-quartile returns, without specific risk-targetting.” As such, he added, a risk-targeted fund was more likely to stay within its risk profile than funds that were chasing competitors’ performance to try to stay at the top of their peer group.

Visit Rathbone website

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