Is it time for platforms to risk-rate products?

Platforms have been accused of putting consumers at risk by permitting highly complex products on their panels. But isn’t suitability down to the adviser?

There has never been such a variety of unusual – and complex – products for advisers to research and recommend to their clients.

Short, or inverse, ETFs – which effectively bet on the fall of an index or other benchmark – are a prime example.

Last week, it emerged that five of the six most popular products on Ascentric were short ETFs – more often used by hedge fund managers than IFAs.

But, with access to higher risk products on platforms, where would the blame lie should an adviser’s product recommendation go badly wrong?

Difference of opinion

Head of proposition at Skandia, Graham Bentley, does not believe platforms should include certain, higher-risk products at all.

He says recommending short ETFs, for example, is akin to “gambling”, not advice, and hints it would be the platform that would get the blame if the product turned out to be faulty.

But Ascentric, which offers the broadest range of ETFs, says platforms should ideally include as many products as possible.

“At the end of the day, it is down to the adviser which products they recommend to their clients,” head of marketing Dominic Ventham says.

Advisers take a more pragmatic view. Philippa Gee, managing director of Philippa Gee Wealth Management, believes platforms do have a role in mitigating risk. She says platforms should carry out their own due diligence before adding a product to its roster.

But she added if advisers begin to hold platforms to account over the listing of a product, they may begin to attach disclaimers to the riskier ones to prevent legal action.

Part of the problem for platforms is protecting themselves – and the clients who do not have an adviser – from inappropriate products, while allowing the adviser to do their job.

Rating the risk

In October last year, SIPP provider Curtis Banks was accused of advice-creep after posting a list of investments it would be unlikely to accept in a pension unless the adviser proved their suitability for the client.

According to Daniel Cawley, an independent adviser at 121 Financial Services, a similar risk-rating system on platforms could be the answer.

“I would not want the provider to put in any restrictions or limitations, because there will always be an exception to the rule,” he says.