The suitability of an investment is at the core of every investment process. After all, with an unsuitable investment could risk a high chance of losses and distress for investors – or for wealth managers; your clients.
However, some investors don’t understand what risk entails and with a product that is considered unsuitable, there is a high probability of unacceptable losses. To prevent that from happening, it’s on the banks and wealth managers to control the process to protect the clients.
But first here are the five stages in the process to help better understand what it’s all about:
Client Profiling: Understanding the client’s risk profile and appetite
Product Profiling: Understanding the product’s risk profile
Matching: Assessing the suitability between the risk profiles of both client and product
Disclosure: Informing client about the risk of the product
Maintenance: Regular controls to ensure ongoing assessments of the suitability of products to clients.
At the crux of it, wealth managers need to effectively demonstrate their understanding of the client’s financial goals and constraints as they meet the regulatory requirements and provide investment advice and services. Question is: How can this be done more efficiently?
Technology – a key enabler for banks and wealth managers. Allows wealth managers to obtain greater client insights across multiple parallels, simple systems are able to manage regular updates on client information, document suitability reports or provide an audit trail for evaluation historic suitability. Beyond that, some systems might even act as the one-stop CRM tool that makes the job easier for wealth managers.
In a nutshell, suitability requirements may be challenging for wealth managers. However, they also provide opportunities to strengthen operations and improve the bottom line – so what’s your take?
Free Download: Suitability Kit
Suitability – one of the cornerstones of customer protection. With increasing expectations for better protection and assortment of wealth management products, wealth managers view suitability as a pressing issue.
Find out the five pillars of a suitability framework that’s effective, and how we can help you get ahead in this FREE downloadable Suitability Kit.