Risk Profiling Policy Update

Summary

• You now have greater choice as to how you assess your client's risk tolerance.

• This means that IFA no longer mandates Finametrica as the sole method of risk tolerance testing.

Background to the policy update

• A client's Risk Profile Statement consists of three parts: their risk tolerance, their risk capacity, and the risk required (refer to Chapter 1 of IFA’s Financial Product Research Policy).

• Whereas the adviser determines the client’s risk capacity and the risk required by considering & analysing the client’s situation, needs and objectives, a client’s tolerance for risk is assessed in large part by a questionnaire that is designed to map that tolerance onto a broad asset allocation.

• A wide variety of risk tolerance questionnaires are in use across the industry; IFA has preferred Finametrica’s standardised risk tolerance tool, which is available in two formats – a 10 point questionnaire and a longer, 25 point questionnaire.

• Through the desk audit activities we undertake on client files from time to time, we have learned that advisers differ widely in their use of the Finametrica process.

• In addition, three separate developments took place last year that prompted us to revise our approach to risk tolerance assessment:

- New financial product design and distribution legislation was released last year that required product issuers to publish Target Market Determinations for their products; we believe this helps consumers consider their tolerance for risk as it relates to a particular investment product.

- Treasury assumed administration of the 12 financial adviser ethical standards developed by the Financial Adviser Standards and Ethics Authority. A keystone for the ethical standards is to encourage individuals to exercise their professional judgement on meeting their obligations.

- We received suggestions from many advisers that there are many 'market grade' risk tolerance assessment tools in use now that are incorporated as part of commercially available financial planning software.

• For those advisers who use the AdviserLogic financial planning software, Finametrica’s shortform questionnaire is now incorporated in AdviserLogic risk profiling process.

• For those advisers who do not use AdviserLogic or otherwise aren’t attracted to an alternative risk tolerance tool, we provide a questionnaire for you to use that has been developed using industry standards. It is available on the Templates & Forms/Templates page of the Adviser Portal, or click HERE to download.

• Although risk profiling is still mandatory when preparing client advice, advisers now have the choice as to which tool to use for risk tolerance assessment.

• The Financial Product Research Policy has been updated accordingly. The FPRP is available for download from the Compliance/Policies page of the Adviser Portal or by clicking HERE.

FAQ

Q: Does this mean that my complimentary access to Finametrica will be discontinued?

A: Yes. IFA’s contract with Finametrica expires on 31 March 2023 and will not be renewed, however AdviserLogic users have access to Finametrica's shortform questionnaire through that platform.

Q: Do I have to export any data on my Finametrica account?

A: You are required to keep client files for at least 7 years from when the advice was given to that client. This file includes any research, analysis, consideration or relevant client information you used to develop your advice. If you haven’t made it a habit to copy the client’s Finametrica data into their file when you’re doing the process, then yes, you will need to have that data in your client file.

Q: How do I export my data from Finametrica?

A: Click HERE to download instructions; if you wish to keep your data you will need to do this exercise before the contract with Finametrica expires on 31st March.

Q: Can I continue using Finametrica?

A: Yes, you are welcome to continue to using Finametrica, however you will have to contract with them directly on an individual basis.

Q: Can I use an alternative Risk Tolerance questionnaire provided by another financial planning software provider?

A: You are free to use any other industry-standard tool (ie one provided by financial planning industry software such as Midwinter, Xplan, etc.).

Q: Can I develop my own Risk Tolerance questionnaire?

A: You are welcome to develop your own tool however you will need to have it approved by IFA before use.