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Rory Percival publishes guide to risk profiling tools

13 September 2017

Rory Percival has published his much awaited report on the capabilities of the major risk profiling tools in the market and raised concerns around the tools’ limitations and “significant differences” in mapping asset allocation.

Rory Percival has published his new report – An ex-regulator’s guide to risk proofing tools – as an independent follow up to the concerns raised by the FCA in it 2011 final guidance paper, FG11/5, a paper he was involved in writing as part of his role as technical specialist at the Regulator.

The guide focusses on six risk profiling tool providers – A2Risk, Dynamic Planner, EValue, FinaMetrica, Morningstar and Oxford Risk – as the main providers of risk profiling tools available directly or through a wide range of other outlets.

Launching the report, Percival said that when the FSA reviewed risk profiling tools in 2011 “they tended to be fairly straight-forward, stand alone, tools”. Since then the tools have evolved and now “they are often more integrated with a wider tool suite and are often part of an end-to-end advice process.”

In the report Percival says that, in general, the tools have improved since FG 11/5. In general, questions and answers have improved, risk descriptions mostly include quantification of risk, and the worst of the scoring anomalies have been addressed.

He notes also that several of the good practice approaches highlighted by the regulator – such as notes sections for recording discussions with the client and a final agreed score – have been added.


The report has two key focusses. First that all tools, to a greater or lesser extent, involve limitations. These include some tools not having risk descriptions that are quantified, scoring algorithms that don’t always result in the correct result, and concerns about asset allocations associated with the risk descriptions.

Addressing risk profiling tools’ limitations is something that will be mandatory for advisers come MiFID II in January 2018. MiFID II states that advisers need to ensure the risk profiling tool they use is ‘fit for purpose’ and that limitations must be identified and actively mitigated through the suitability assessment process.

Percival said: “In addition to the hard rule that MiFID II introduces that requires advisers to actively mitigate risk tools’ limitations, the FCA remains concerned about advisers’ approach to risk profiling as highlighted in its recent ‘Assessing Suitability Review’ findings. So, this is an important area that advisers need to focus on.”

Asset allocation mapping

One of the biggest areas of concern identified in the guide is the fact there are significant differences in the mapping of asset allocations. Although not required by the regulator, some of the risk profiling tools include asset allocations as part of the risk category descriptions. For example, for the same client – exactly in the middle of the range of risk levels – the high-level asset allocations varied significantly:

Note: asset backed is defined as equities and property; non-asset-backed as fixed interest and cash.

Percival said: “Advisers need to be clear about the basis for the mapping of the asset allocations and be comfortable that they are appropriate for clients. The guide explores some important issues on this subject and advisers should be clear about these issues as they remain responsible for their investment advice.”

Percival said the guide aims to help advisers meet the MiFID II requirements. It summaries how the different tools work and tests them against the FCA’s guidance on risk profiling. It also offers a framework that advisers can use to assess tools that have not been reviewed, as well as a section on using each tool effectively with clients to address limitations.

Percival said: “I suggest advisers use this guide as a starting point for assessing their risk profiling tool. My main concern, highlighted in the report, is the variation in the asset allocation mapping between the different tools. In the guide, I set out the actions advisers should focus on to ensure the investment solution meets the risk profile of the client.”

The guide costs £250 plus VAT (20% discounts available for certain categories of adviser) available at:

Provider response

In the accompanying filmed interview (click on the image to open), Ben Goss, founder of Dynamic Planner, responds to the report and its findings around limitations and asset allocation.


Professional Paraplanner