Review Investments for Suitability

Review Investments for Suitability

What don’t we know about the financial instruments that our clients are invested in? Have any delivered any nasty surprises in the current market? Or have they behaved as anticipated? This is not a question of absolute market performance — rather, it is asking if the product has displayed the characteristics and behaviors that it promised.

Advisors are required to ‘know the product’, but that knowledge may not always run deep. Knowing the product allows for transparency with clients, which is a precursor of informed consent.

Often, we rely on materials from the product issuer — which will, frequently, tell us what we need to know. After all, some financial products are straightforward and simple and the issuer is, we assume, meeting all of their disclosure obligations.

Sometimes we rely on third-party reviews and ratings. It’s a bit like buying a car based on an expert review, even though we don’t personally know exactly what is under the hood. Seeing the car comfortably carry a full load up a steep hill tells us what we need to know.

But financial products are quite different. Sometimes, when that hood does finally open you find out the engine is much smaller than what was described, or maybe not there at all!

To assess the suitability of a financial product we need to know:

  1. Exactly what is under the hood – is it true to label?
  2. The ‘behaviors’ that can be expected, under different market conditions
  3. The ranges of potential performance and volatility – what could the best and the worst look like?

Clients will generally assume that a product is what it claims, although advisors have an obligation to probe that assumption. But clients will be acutely concerned with the last two points, as they go to heart of suitability — a product that behaves in unexpected ways or suffers extreme unanticipated volatility can jeopardize a client’s ability to achieve their goals.

SuitabilityPro™: Next generation risk profiling, financial planning, investment policy and suitability tracking. Visit our trial page to sign-up for a free 30-day trial of SuitabilityPro™.

I have been using FinaMetrica for over 17 years for onboarding new clients. They like the extensive value of the reports; but what we appreciate is the innovations in technology, the value of the client-facing materials and the development of the life-long client relationships as I get to really know their behavioral tendencies. FinaMetrica has assisted me in building a very successful practice and we highly recommend it for any advisor who wants to enhance the overall value of their client relationships.

Ron Wilkinson - Portland, Oregon, USA
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