The questionnaire also needs to be appropriate for all ages, all investing experiences, and all knowledge of investment products.
The FCA published guidance on the use of ATRs back in 2021 (FG11/05), and reference this within the thematic review of retirement income.
Sections 3.16-3.17 of FG11/05 address the FCA’s concerns over what it deems “poor questions” and it gives examples of questions being asked that are vague or assume knowledge or experience that are not appropriate for the advice firm's clients, or that are compound and therefore might cause a client to want to respond differently.
All of these were offered as an example of why an ATR might not be fit for purpose and therefore not reliable from a suitability perspective.
ATR outputs
Most ATR questionnaires produce a variety of outputs with the main focus normally a single number representing the client’s attitude to risk on an increasing scale.
A client is not going to know what this number means, and in reality it does not mean anything until it can be applied to a range of investment solutions, so it is important to give alternative ways of explaining the level of risk that your ATR score represents.
This could include allowing a client to:
- Read risk descriptions of their calculated risk level as well as surrounding levels to see if this resonates with the client.
- View numerical representations of potential losses and gains over time of each risk level to check that the level of losses are appropriate.
- View expected returns, volatility or maximum one-year losses to see what type of results might be achieved with each risk level.
- See what asset allocations might look like at each risk level, and what might change if the client chooses to take more or less risk.
The FCA was impressed with tools that gave clients different ways to view the same information to cater to clients who engage differently through text and visual representations (FG11/05 – section 3.29 “Good Practice”), as this will aid clients' understanding of the risk they are likely to take, and therefore meet Cobs 9.2.2 requirements.
It will be important for clients to have a full conversation with their adviser, including discussing other factors that might affect suitable investment solutions, before selecting the risk level that will be used in the financial advice process. We find that advisers are having these conversations and selecting a different risk level if it is required.
ATR over time
We know that the FCA does not want us to rely on ATR results if the information is out of date (FG11/05 section 3.25), so it is important that the ATR questionnaire is taken on a regular basis to track changes in a client’s responses or their ATR over time.
The FCA also mentioned the period of time where a client changes from the accumulation to decumulation phase as being important to understand if a client’s ATR has changed (TR24/1 section 1.33).
In order to see if a client’s ATR result has changed, it is vital to use the same model, so that you can be certain that the ATR change is a result of the client’s thoughts, feelings, and behaviours changing, rather than it being because the method of assessment has changed.
