Defining risk

This week saw the publication of the Risk Warnings Review led by the Investment Association. It is an initiative to reform how financial risks are communicated to retail investors, hoping to move away from alarming or formulaic warnings such as “capital at risk”, towards more balanced, contextual, and understandable language. Ultimately it is looking to shift the investment culture from discouraging, overly-cautious warnings, to balanced descriptions of both risk and reward, with an aim to boost low retail investment participation in the UK.

Professional Adviser published its thoughts on the review and asked a number of financial advisers and other experts for their comments. Dan McKissock, one of our chartered financial planners was asked for his views:

Consumers misunderstanding risk

For some advisers, the review highlighted how consumers are misunderstanding risk and how this is holding them back from investing. Connor Broadley Chartered financial planner Dan McKissock shared that in workplace financial sessions, where he is often speaking to first-time or hesitant investors, he sees risk viewed in “very simple terms”.

“Cash feels safe and investing feels dangerous,” he explained. “Concerns tend to focus on the risk of total loss, sometimes with comparisons to gambling.”

However, in an advised relationship, he said: “risk is not a one-off warning.”

“It naturally forms part of an ongoing conversation, where we can take time to provide context, and anchor the pros and cons of investing to someone’s time horizon and real-world goals.”

McKissock believes the review’s emphasis on “more balanced, contextualised explanations of risk” is welcome.

“At their best, these disclosures should move beyond compliance and act as a form of investor education in their own right, giving people the confidence to engage with investing in a meaningful way.”

To read the full article click here:

Professional Adviser – Risk Warnings Review