Risk profiling has become a more complex and challenging process. Investors have had their fingers burnt by the financial crisis and more is demanded of advisers following the implementation of the retail distribution review.

Technology has emerged that can help financial advisers reach the right conclusion for their clients. Risk profiling questionnaires can help to some extent to isolate exactly what a client thinks, but it is not that straightforward. People have distorted views of their attitude to risk, with many paying attention to dramatic outcomes (such as a large fall in the stock markets) rather than the corrosive effects of inflation on savings over the long-term.

An important part of this understanding is linked to behavioural finance - what do investors do when they hit a trough, or when they see markets rising steadily? Very often they behave emotionally - bailing out just at the bottom of the market or buying into it just when the market is about to turn.

But it is important to get it right, as the case with Sesame Bankhall highlighted a couple of months ago. The group was fined £6m for allegedly mis-selling Keydata products, and the FCA found there were control and cultural failings at the firm. There was a mismatch between what the clients said about themselves, what their attitude to risk was and the product that was sold.

Risk profiling is a vital part of the adviser’s business and should continue to be treated as such.

Melanie Tringham is features editor of Financial Adviser