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Five steps to a successful risk management strategy

10th October 2017

Risk management is an ongoing process, requiring the right documentation, commitment and resource.

If you were to ask 10 advisers what risk management meant to them, you would likely get a wide variety of answers. Quite probably 10 different ones.

I am often asked what constitutes a sensible risk strategy for an advice firm. While there will be some aspects tailored to each individual firm’s particular circumstances, there are features common to all which, if followed, will provide a solid basis on which to manage the risks faced.

1. The appropriate documentation

I prefer to work from standard documents, then to adapt them as required. There is little purpose served by starting from scratch as important elements can be missed. Most compliance consultancies will have templates that can be adapted.

The main documents for most firms are likely to be:

2. Management commitment and staff involvement

A risk plan and matrix should be drafted and populated with active involvement of the owners/senior management. All those in the business with the requisite experience of different aspects should be involved, too.

This will help ensure all the relevant risks are captured and the ways in which they can be mitigated discussed.

3. Ongoing regular review

A risk plan and matrix are not documents to be locked away in a drawer. Instead, they should be “living” documents that are reviewed and updated regularly. The risk matrix, in particular, should be reviewed no less than quarterly in most advice businesses.

4. Accountability

It is vital there is clear ownership and accountability of each risk. Within larger firms, it is usually appropriate to allocate risks among the directors/partners, as well as senior managers on occasion.

 5. Prioritising key risks

It is sometimes too easy to get lost in the process and not focus on the risks that matter. Those risks that have the highest probability and impact, and the lowest net scores after adding in mitigation, are the ones to be given most attention.

So, what are the top risks in today’s market? As I have mentioned, they will vary from firm to firm, but here are the most common ones I am currently seeing:

Risk management is an ongoing process. With the right documentation, commitment and resource it is a vital aspect of any business, and should be given the attention it deserves.

This article was originally published on Money Marketing

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