Complaints against Isa providers ignoring client risk tolerance rises 67%

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Complaints to the Financial Ombudsman Service (FOS) regarding Isa providers ignoring the risk preferences of their customers increased 67 per cent in 2015.

The ombudsman received 467 complaints regarding risk tolerance in 2015 compared to 280 for the previous year. However, in 2013 complaints totalled 651.

Total complaints about investment Isas totalled 1,290 for the year ended March 2016, up 28 per cent from 1,006 in the year previous.

Alan Lakey, partner at Highclere Financial Services, says complaints often rise when the market is performing poorly, suggesting many investors do not properly understand risk.

“If I provide you an investment you didn’t understand and it went up 20 per cent, you wouldn’t be moaning at me. You’d wait until it fell before you started moaning at me.”

Lakey says risk is a complex concept to explain to clients and is often couched in lots of jargon.

“When I talk to clients I say ‘would you consider yourself low risk, medium or high’. Ninety-nine per cent of people would say medium, which in truth doesn’t necessarily play out when you dig a bit deeper.”

“I can’t imagine that advisers will be paying less attention given the stock market jumped up and the way it’s fallen back in the last nine months. I would imagine, if anything, they’re paying more attention.

Senior analyst at Hargreaves Lansdown Laith Khalaf says: “Advisers are very, very heavily regulated. They have to jump through a lot of hoops and if they get things wrong there are potentially very bad consequences.

“By far the vast majority of financial advisers are very hot on making sure that their clients’ risk preferences are expressed in their investment portfolio. There’s probably even maybe a bias to err on the side on the side of caution.”

Chairman of digital wealth manager MoneyFarm Paolo Galvani says many UK investors are not as diversified as they should be.

“Part of the reason why people are under-investing in their pension is that they regularly get burnt by taking risks that they are unaware of.”