The Financial Services Authority (FSA) is warning advisers to ensure their in-house risk assessments are aligned with those of any discretionary fund managers (DFMs) they use.
FSA technical specialist Rory Percival said advisers failing to check whether their classification of a client having, for example, a 'cautious' attitude to risk matches that of the DFM risks "systemic mis-selling".
"As an industry, we are very bad at jargon", said Percival, who was speaking at the Defaqto DFM conference in London this week.
"One party may be referring to fixed interest, and another to bonds, even though they are synonymous. The DFM and adviser both have suitability obligations to the client."
Percival also cautioned advisers about being "aspirational" when segmenting and assessing client banks.
"When we [the FSA] visited firms, we would ask managing directors what their client bank was like. But when we looked at the data we got a very different picture. Firms are being aspirational about their client banks. Be realistic."
The FSA would not be judging whether firms offered value for money - a common misconception, Percival said.
"Professionalism is the core of how you will be assessed," he said. "The only person who can decide [value] is the client."
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