Attitude to Risk vs Capacity for Loss: Winning the Battle of Contemporaneous Evidence

The complaint arrives after the fall

The usual letter says the portfolio was too risky. It arrives once the loss has happened. The questionnaire on file, signed at the time, often records a high attitude to risk. Firms that defend on that signature alone lose the point that matters.

COBS 9.2 requires a suitable personal recommendation. Attitude to risk is the client’s stated willingness. Capacity for loss is whether their finances could bear the fall. Ombudsman decisions treat the second as the constraint on the first. A keen attitude does not make an unsuitable recommendation suitable.

What the fact-find has to show

The defence is contemporaneous, or it is a reconstruction. The documents that carry it are the ones completed before the investment:

• Cash buffers and emergency reserves, stated as amounts.
• Non-discretionary expenditure: the spending that could not be cut if markets fell.
• Other income and assets that were going to meet that spending if the portfolio dropped.
• The fall that was discussed, in pounds, against that floor.

A psychometric score without those figures is a preference. It is not evidence that the client could absorb the loss now complained of. Where the fact-find does contain them, the reply sets the loss complained of against the buffer that was recorded, and against the time horizon the client agreed.

Summary

Complaints about risk are won and lost on the fact-find, not on the score. Capacity for loss, written down in pounds before the recommendation, is the evidence the Ombudsman will prefer to a later recollection.