(Mis)Using risk profiling software

At Dover, many of our advisers have joined us having previously been with other AFSLs. One common mistake we see these advisers make is to continue to use the risk analysis ‘questionnaires’ mandated by the former AFSL.

Dover does not use risk analysis questionnaires. Instead, we require the adviser to record their opinion in the SOA, and then justify that opinion using considered professional judgement. To do so, we require the SOA to make specific reference to the client’s age, income, wealth, education, occupation, training, prior investment experiences and any other relevant facts.

There are at least two good reasons for this. The first is simply that we think that advisers should think hard about all of these client characteristics. Decent advice must be made with these attributes of the client firmly in mind. Too often, the use of software reduces the client to a characteristic:

here comes client A, who is conservative;

instead of

here comes Wendy Smith, a 45 year old single mother of three school-aged children earning a below-average wage as an integration aide in a primary school and having a hard time getting the kids’ father Darren to meet his child support commitments. She wants to make sure her kids, especially her two daughters, have greater financial freedom than she has been able to enjoy. Her own health is not the best and there is a chance that she will not be able to work full time for many more years. Her mum just died and left her some money. She has never invested before, is quite nervous and so the most important thing is that she do everything possible to avoid losing this money. Conservative investments are the only ones worth considering in her case.

The second reason is more for the advisers’ own protection. In the unhappy event that something goes wrong with your advice, “I had you pegged as aggressive because the software said so” simply won’t cut it in Court. The expectation of the Court and the community (and Dover!) is that financial advisers think long and hard about the best way to help their client with their individual situations. A software generated profile will never meet this standard.

The Dover Group