The Origins of Capacity for Loss
In a recent episode of Adviser 3.0 The Podcast, Abraham Okusanya speaks with Rory Percival, a leading figure in UK financial services and a respected consultant. Rory was instrumental in introducing the concept of 'Capacity for Loss' into the adviser lexicon, a term that continues to shape the way financial advisers assess client suitability today.
Why Capacity for Loss Matters
Capacity for Loss goes beyond an investor’s attitude to risk. It measures how much financial loss a client can realistically withstand without jeopardising their long-term financial objectives. This concept is particularly significant when planning retirement income strategies, where sequencing risk, inflation, and longevity all play a role.
During the discussion, Rory highlights the importance of clear assumptions when applying this concept in practice. Advisers must not only assess the client’s tolerance for market volatility but also consider the impact of withdrawals, inflation, and lifestyle needs over time. Without careful analysis, advisers risk misaligning recommendations with client realities.
Assumptions and Issues in Practice
Rory shares how inconsistencies in applying Capacity for Loss can lead to flawed advice. Some advisers may over-rely on risk questionnaires without fully integrating the financial implications into their planning process. Others may underestimate the variability of investment returns and the knock-on effects for clients drawing an income.
This conversation underscores the need for evidence-based planning, robust modelling, and ongoing reviews to ensure advice remains suitable throughout a client’s retirement journey.
Rory Percival’s Personal Approach to Retirement Investing
As well as shaping the industry, Rory shares how he applies these principles to his own portfolio. His strategy balances growth potential with resilience, acknowledging that even financial experts must prepare for uncertainty. This personal perspective reinforces the practical application of Capacity for Loss in real-world retirement planning.
A Must-Listen for Financial Advisers
For advisers committed to delivering clear, compliant, and client-focused outcomes, this conversation offers valuable insights. It highlights why understanding Capacity for Loss is fundamental to effective financial planning and long-term client success.
To listen to the full discussion, tune in to Adviser 3.0 The Podcast or explore more resources on Timeline.
