10.07.2016

FinaMetrica Launches Industry’s First Lexicon of Financial Risk

 

FinaMetric.com – FinaMetrica, the independently-owned risk and suitability expert, is calling for the global financial services sector to adopt an industry agreed risk lexicon in its exclusive academically-researched report, ‘Moving Towards a Consistent Risk Language’.

Created in collaboration with economist and consultant, Stuart Erskine and with input from Dr Andrea Vedolin from the London School of Economics, the paper examines how clear, consistent, standards around the language of risk are essential for effective communication between the industry and its clients.

A wide range of terminology associated with both an investor’s risk tolerance and the wider concept of investment risk are set out in the paper, as the starting point for what it believes will grow to become an industry-wide, workable vocabulary, all of which can be easily understood by the end consumer.

From here, FinaMetrica seeks to encourage relevant representatives from businesses across financial services to come together and form a working group, led by Stuart Erskine, to turn the initial concept of consistent risk language into a practical toolkit for the industry.

Commenting on the launch of the report, Paul Resnik, Co-founder and Director, FinaMetrica, said: “The whole premise around investing is that you largely get paid a return for taking on risk. Yet, bizarrely, there is no agreed way for how the industry discusses risk with clients and no agreement on what different risk terms might mean. The result is that any two people can derive very different meanings from the same risk concept.

“FinaMetrica has argued for a long time now that a sound understanding of clients’ risk tolerance can help discourage portfolio churn and, ultimately in turn, ensure that financial firms keep their customers for longer. We see the standardization of risk language as the missing link that can ensure there are no negative investment surprises for the customer, by helping them to fully understand how the level of risk they choose to take on aligns with their own expectations.”

Stuart Erskine, added: “There has been no single document or reference point that brings together all the different terms of risk, until now. And the conversation around risk language does not stop here either.

“The paper is not intended as a set dictionary of terms but more as the outline for a vocabulary that is designed to kick-off conversations in the industry, so that we can start working towards agreed standards around how we talk to clients about risk. With this in mind, we invite readers to share their thoughts on the report before establishing a working group in the next step towards developing the first ever risk language for financial services.”

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