Advisers expectant of risk suitability backlash
A survey of Australian wealth managers has revealed their fears around clients making compensation claims after failing to understand risk suitability.
Conducted by behavioural finance firm Oxford Risk of 100 wealth managers who managed around $232 billion, it found over half (58%) expected pressure to compensate clients would increase over the next five years.
This had been exacerbated by the recent market volatility, rising inflation and interest rates which meant clients may have received lower returns than they were accustomed to.
Some 35% said their clients had made impulsive decisions to the detriment of short-term plans and 34% had bought high and sold low.
Some 77% expected action from the regulator over the next five years to require them to better understand risk tolerance and suitability.
Bianca Kent, head of client and strategy, Australia at Oxford Risk said: “Investment markets have been highly volatile in the last three years and many clients will inevitably be disappointed with their returns.
“It is worrying however that so many wealth managers fear they will face compensation claims over their advice and particularly worrying that it will focus on a poor understanding of client risk profiles.
“There is a widespread expectation from wealth managers that there will be tougher regulation on the issue, and we would urge them to act now and get ahead of any changes in regulation.”
AUTHOR
Laura Dew
Recommended for you
With an advice M&A deal taking around six months to enact, two experts have shared their tips on how buyers and sellers can avoid “deal fatigue” and prevent potential deals from collapsing.
Several financial advisers have been shortlisted in the ninth annual Women in Finance Awards 2025, to be held on 14 November.
Digital advice tools are on the rise, but licensees will need to ensure they still meet adviser obligations or potentially risk a class action if clients lose money from a rogue algorithm.
Shaw and Partners has merged with Sydney wealth manager Kennedy Partners Wealth, while Ord Minnett has hired a private wealth adviser from Morgan Stanley.
