Risk profiling tools come under fire from FSA

The FSA has advised that bad investment selection in the pensions market is still a “significant concern” to consumers – risk profiling tools come under fire.

FSABad investment selection in the pensions market is still a “significant concern” to consumers, the FSA has warned, with risk profiling tools too often producing flawed results for consumers.

The watchdog said there was an “unacceptable” level of failure by pension providers in providing products matched to customers’ risk profiles, and that tough action would be taken against firms to deal with the problem.

In a review between March 2008 and September last year, the FSA reviewed 11 tools, of which 9 had serious weaknesses. Overall, 199 failed cases out of 366 did so because they ignored the customer approach to risk.

The review included tools designed in-house by firms and those provided by third parties, including platforms.

The FSA says: “Tools can usefully aid discussions with customers, by helping to provide structure and promote consistency. But they often have limitations which mean there are circumstances in which they may produce flawed results. Where firms rely on tools they need to ensure they are actively mitigating any limitations through the suitability assessment and ‘know your customer’ process.”

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