The Ombudsman highlights problems identifying and matching clients' risk tolerance 
Consumer complaints about investments have nearly doubled in the past year, according to the Financial Ombudsman Service’s annual review. Overall investment and pension complaints (now including mortgage endowment cases) jumped to 22,265 from 12,787 in 2007/08. Commenting on the report, Citywire’s ‘New Model Adviser’ forum singled out that ‘while the ombudsman recognised under performance of investments was a factor in some of these complaints, it said poor stock market conditions had exposed poor advice. In particular it identified a trend in complaints where financial advisers had not sufficiently considered clients’ tolerance to risk.’
Having taken a complaint against one of the banks to the FOS, I can see that there is a significant risk of a lottery effect in the adjudication of blame in this area, simply because the typical process of discovering risk attitudes is so unscientific, unquantified, jargon-filled and partial. In my book I referred to it as ‘woolly flannel’. Six years later, nothing has changed. This applies equally, by the way, to banks, IFAs and private-client portfolio managers. You can read a slightly expanded version of the comment I posted on the Citywire site, for the benefit of our peers, suggesting more quantification would bring clarity to both parties and help avoid disputes.
Stuart Fowler on 05.27.09 @ 06:48 PM GMT [">more..]