Risk Profilling

Do you understand the risk in your investments or your current portfolio?

You have the right to expect that the fund portfolios we build will meet your investment needs within a given risk level. To achieve this we provide a range of tools that help you to measure and agree your attitude to risk – your risk ‘score’.

Once a risk score has been established and agreed with the you, a corresponding portfolio can be built whose asset allocation is optimised to provide the maximum expected return for that particular level of risk.

Attitudes to risk are subjective and sometimes inconsistent. It’s important therefore to ensure that the methods used to measure your risk profiles take full account of such factors.

For this purpose we use a number of different tools like Skandia who have developed a risk profiling questionnaire with advice from leading investment consultancy Towers Watson. It involves a series of questions, graded appropriately, and aggregated with weightings to reflect the impact that each question has on the final result.

The Skandia Risk Profiler uses a questionnaire to translate an individual’s general views on investment risk into a single number – a ‘client risk score’.

This is a measure of the your willingness and capacity to accept investment risk. So once the score has been calculated, it’s important to explain to you what that number means and explain its implications, so that you can ensure that you invests at a level of risk that you are both willing and able to tolerate.

Skandia risk scores range from 1 to 10, with 1 being the most risk-averse and 10 being the most tolerant to investment risk – risk-seeking.

The Skandia Risk Profiler questionnaires are available for individuals, trustees or retirement planning.

What issues does the Risk Profiler cover?

Your financial circumstances:

1. The term of the investment.

2. Your level of cash reserves to meet unexpected expenses.

3. Your view on the potential for their earnings to grow in future.

4. The size of the investment portfolio.

5. Your debt position.

6. Retirement provision (retirement risk profiler only).

Your risk tolerance:

1. Your overall view on investing.

2. The importance of avoiding short-term losses.

3. The level of loss that would concern you.

4. Your view on whether any losses incurred will be recovered.

5. The importance of protecting the investment from the effects of inflation.

6. The extent to which you are prepared to assume greater investment risk in order to achieve higher investment returns.

This is just an example of one of a number of different risk profiling and capacity for loss questionnaires/tools that we use.