Time to de-Risk your business?

It perhaps goes without saying that, when it comes to risk, there are factors that we can control, and those that we can't. So many lie outside of our reasonable sphere of influence, that all we can do is acknowledge that they are there, and keep our eyes peeled. Few normal mortals can expect to have any real impact on the economy, or world stockmarkets, or government policy, or whatever it is that they do in Canary Wharf.

Over the years that ValidPath have been engaged in supporting IFA firms, we have, however, identified a range of practices which actually increase business risk - and the surprising thing is that they are quite widespread. Here are a few examples:

• an over-dependence on indemnified commissions, accompanied by an indifference to the practice of maintaining clawback reserves - thus the inevitable happens when the economy hits the buffers;
• a disregard for the practice of regular, routine client contact - which means that, when adverse investment conditions give rise to client dissatisfaction, there is little 'relationship' in place which might mitigate the expression of a complaint. In our experience, around 80% of all complaints would simply not happen if IFAs kept in contact with their clients;
• the acceptance of 'any business' on almost any terms, rather than the cultivation of referrals from your best clients, in order to introduce some quality control;
• a disdain for 'templated solutions' in favour for bespoke arrangements, every one unique to the client in question. Laudable though the principles underlying this approach might be, it tends to spawn an ever-changing multiplicity of investment solutions which are (a) immensely time-consuming to create, and (b) almost impossible to monitor and manage over time. And, of course, the likelihood of a recommendation blowing up in one's face is significantly raised;
• placing little emphasis on the 'annual review' element of our service.  Quite apart from the risks that this might present to existing revenue streams in an RDR world, there is the more obvious likelihood that real opportunities are missed due to the absence of planned activity;
  
• a focus on getting business written and paid, leaving the less enjoyable compliance elements to later on. In our lengthy experience, files constructed this way are rarely persuasive when it comes to constructing a defence when a client complaint arises. Nothing beats doing the job correctly, at the time it needs to be done - and it almost beggars belief that this kind of thing still goes on. But it does.