Monday, 2 January 2017

Who Is Responsible When Investments Go Wrong?

With the Dramatic changes in recent years in the financial advisory business with regards to compliance, risk management, revenue and business models, the question needs to be asked: have they all been in the best interests of the clients or have the clients of financial advisory firms actually ended up being disadvantaged because of having increased responsibility and liability over the investment decisions they make? A recent claim in the UK by a wealthy couple against Coutts Private Bank, was dismissed as the judge said the clients were sufficiently informed and happy about the risk in the portfolio (but they did state they were under the influence of their adviser).

Credit: ESI Money
This is a significant judgement as it puts the responsibility back on the investor where they have, or express, a degree of experience. They cannot simply blame the adviser for everything that happens. To counter this, the Financial Services Ombudsman would prefer to make the adviser entirely liable. He believes the risk profiling of clients needs to be improved and he is concerned about the emphasis on who is to blame, rather than whether the process was done correctly in the first instance. He believes financial advisers need to properly segment their clients, based on their understanding of investment markets, with a strong emphasis on structuring portfolios and products around the clients aims and goals. Whilst this would be seen as common sense, within the financial planning industry it would appear to not always happen in practice.

It would be fair to say the regulators in general have placed too much emphasis on ticking boxes and having the client sign off on every possible disclaimer. It is a very challenging market where innovation is difficult because of over regulation or at the very least, overemphasis on signing away responsibility - at the adviser level. One thing is for certain, there is an increasing emphasis on regular reviews in order to not only keep clients informed but also reassess how the client is progressing against the original objectives and whether their circumstances have changed. How do advisers keep adapting their business model to focus on regular reviews and ongoing servicing? The answer must lie with technology. There are a few specialist FinTech's who work with financial advisers to support them with new technology - Just Service Group is one such example. If you would like to know more information about services available please contact or visit our website at

One of the important distinctions to make regarding the Coutts case is the claimants were classified as sophisticated clients with significant personal wealth. Having a significant amount of wealth is not any indication of a person’s understanding of markets. As an example, take a woman receiving a divorce settlement of £10 million - who is a nurse by profession. It is most likely she will not be able to make investment decisions and understand risks. It is even more likely she would not be interested in financial affairs. However, if clients are segmented based on their competence and understanding of markets, it will mean a professional investor should not find themselves in a position where the adviser can make significant mistakes.

The Just Service Group are a financial technology company offering financial advisory firms and expatriates a service platform designed to protect both the financial adviser and the client, when it comes to the providing and assessing of financial planning advice. For more information email or visit our website:

Source: International Adviser November 2016

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