IFAs must ‘do more’ to manage client expectations - OBSR

Advisers must work harder to manage clients’ expectations realistically as more complex products enter the market place, according to OBSR.

Speaking at a Cofunds' Low Risk Investing roundtable, Richard Romer-Lee, research director of OBSR, warns some advisers do not take their clients’ aspirations seriously enough and need to do more to manage their expectations in line with their risk appetite.

He believes un-savvy investors are prone to irrationality and greed and it is the adviser’s job to qualify risk, especially when consumers are being seduced by increasingly complex product offerings.

Romer-Lee says advisers should have a contract outlining what they are trying to achieve for a client. 

“It should say they will protect the customer from fear and greed at any point in time by ensuring clients do not unknowingly take too much risk in complex leveraged products, or too little at a time when confidence is low.”

Russell Lancaster, director of fund manager relations at Cofunds, says consumers need advice now more than ever. He says while Ucits III offers more flexibility and complex investment techniques, Lancaster says consumer-friendly language to help advisers explain such propositions is vital.

“At a time when we have got more innovative products such as Ucits III funds and products using derivatives, there is a contrast as consumers need simply-explained products and advisers need help in understanding and selecting complex funds,” he says.

“Now is a prime opportunity for adviser to have an honest debate with clients. At a time when investors are saying they do not trust banks, advisers have the opportunity to enter into a contract.”

In order to cope with an increasing workload, the roundtable panel agreed advisers need more help with asset allocation, especially in the current economic climate. 

Romer-Lee warns IFAs must get beneath the skin of a generic product range, such as Cautious Managed funds. He says they should not only rely on IMA sectors, as they do not inform advisers how funds are run.

Romer-Lee says: “It is becoming tough for IFAs to get their heads round what fund managers are doing with the increasing range of tools available to them and consequently harder for advisers to assess the offerings’ suitability for their clients.”

He believes the forthcoming RDR will shake up adviser behaviour as IFAs will have to be more knowledgeable and make greater efforts to meet their clients’ needs.

“An adviser’s job is to act as the agent of the customer, not the provider,” says Romer-Lee.

Lancaster says platforms and product providers have a role to play in educating advisers.  Platforms are no longer just administrators and are bringing investment experts and best of breed funds on board to help the adviser and therefore the consumer, he says.

“We will corral the best in the industry to help advisers with their evolving task over the next three to four years,” Lancaster adds.