Joss Mitchell, director of UK business at Citi Private Bank, discusses how client risk-profiling stands in the industry today.

Joss Mitchell, director of UK business at Citi Private Bank, discusses how risk-profiling stands in the industry today. 

For Joss Mitchell, the integration of risk-profiling tools with client relationship management and portfolio management tools should be “a given” today. “To be honest, I now see the systems all as one,” he says. “I don’t see how you can be an effective portfolio manager without having the risk-profiling systems integrated into the back of the system as well. More integration makes it easier for the managers, for the bankers, and so surely it’s got to make things better for clients.”

Record-keeping

According to Mitchell, part of the reason that the industry has some way to go in improving its record-keeping is that historically it’s come from a “largely self-regulated background” and it used to be down to the individual manager and the firm to maintain records. However, as regulations have become stronger over the past twenty years demand has increased for record-keeping as it has now been a legal and regulatory requirement for a number of years. “Some firms have been quicker than others (because at the end of the day this all costs money), but I think we’ve largely arrived at an industry standard on how long to keep data etc,” he said. 

While Mitchell believes that record-keeping can be improved, he believes the industry should keep an eye on relevance. “The problem is rubbish data in, rubbish data out. The data you retain has to be relevant,” he said. “The danger is we go into an environment where we just ‘kitchen sink it’ and records are kept which are full of everything which doesn’t actually help. In fact, what it actually does is bog everything down. Yes, we need to retain information which helps us manage our client relationships long-term, but we need to make sure it’s the relevant information.” 

What represents best practice?

Like most practitioners, Mitchell views risk-profiling questionnaires as just a small part of the puzzle and believes it is the in-depth fact-finding and ongoing discussions with clients which are key. Quantitative methods “shouldn’t be relied upon”, he said, echoing comments made by most of the contributors to this report. The problem is that questionnaires can be “one-dimensional” and fail to pick up the all-important subtleties which a conversation with a skilled advisor will uncover, he says, noting that “the problem with any pre-formatted template is that it is exactly that: pre-formatted.”

Aside from the fact that risk-profiling questionnaires often fail to pick up all the complexities of clients’ situations, he is also concerned that some profiling processes don’t take enough account of the fact that clients’ risk profiles can and do change radically over time.  “A client’s risk profile from two years ago is potentially very different to their risk profile today,” he notes. “Invariably what has happened in the industry in the past is that a client would be asked to complete a questionnaire at client take-on, then in theory there should be an ongoing discussion over time… but I wonder the extent to which that has actually happened across the industry.”

In Mitchell’s view, the key to best practice when it comes to risk-profiling is a mixed methodology. “It’s a combination of everything. To have a template is important, but it should not be relied on. There has to be a bringing together of a template, an ongoing risk diagnosis which is scientifically looking at data all the time and also day-to-day holistic conversations with clients,” he says. Bringing all of this data together is a difficult but essential part of client relationship management in Mitchell’s view.