EV warns that Drawdown clients are at risk

# Drawdown Clients at Risk of High-Risk Investments, Warns Financial Planning Fintech

Drawdown clients are at risk of being exposed to high-risk investments without their knowledge, according to Financial Planning fintech EV Financial Solutions. This situation has left advice firms vulnerable to potential complaints, creating a ticking time bomb in the industry.

EV Financial Solutions rated 170,000 funds for income risk and found that 76% of the funds used for drawdown clients were at the high end of the risk spectrum. The research also revealed that just a quarter of multi-asset funds have a low to medium income risk rating, while more than half of all the funds have ‘retirement’ in their name, forcing investors into funds that may not match their risk tolerance.

The firm’s analysis contrasts with data from EV’s income risk questionnaire, which showed that over 85% of retirees have a low to medium appetite for risk to their income. This suggests that investors in decumulation may be unknowingly exposed to higher-risk investments beyond their comfort zone.

The findings come in the wake of the FCA’s recent thematic review of retirement income advice, which highlighted serious deficiencies in aligning investment solutions to clients’ risk profiles and tolerance levels. The regulator’s review of advice models and files found that there was no clear distinction between accumulation and decumulation in the risk profiling approach of the 24 advice firms sampled.

Bruce Moss, founder of EV Financial Solutions, expressed concern over the findings, emphasizing the potential problem advice firms may face if urgent action is not taken. He warned that clients are being exposed to more risk than they would feel comfortable with, putting their income plans and future wellbeing at risk.

### FAQ

**Q: How can drawdown clients protect themselves from high-risk investments?**
A: Drawdown clients should work closely with their financial advisors to ensure that their investment portfolio aligns with their risk tolerance and long-term financial goals.

**Q: What steps can advice firms take to mitigate the risk of exposing clients to high-risk investments?**
A: Advice firms should conduct thorough risk assessments, communicate effectively with clients about their investment options, and regularly review and adjust portfolios to ensure they match clients’ risk profiles.

**Q: Is the FCA providing guidance to help firms address these issues?**
A: Yes, the FCA has issued recommendations to financial advice firms to review their retirement income advice processes and ensure that investment solutions are aligned with clients’ risk profiles.

### Conclusion

The issue of drawdown clients being exposed to high-risk investments highlights the importance of thorough risk assessment and investment portfolio alignment in the financial planning industry. Financial advisors and firms must prioritize the well-being and financial security of their clients by ensuring that investment solutions match their risk tolerance and long-term goals. By taking proactive measures to address these concerns, advice firms can protect both their clients and their reputation within the industry.

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