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Risk Profiling

Different advisers within our business, (and indeed clients) have widely varying interpretations of Risk. It is vital from a business perspective that all of our advisers operate within the same interpretations of risk.

Furthermore, a key obligation under Treating Customers Fairly is that all of our clients assessed to be of equal attitude to risk should receive the same investment portfolio.

 

  
     

 

The only way to achieve these outcomes is to establish a consistent measure across the business for establishing attitude to risk.

The basis that we have adopted for the consistent assessment of attitude to risk is for all advisers to ensure that their clients complete an attitude to risk questionnaire.

The Attitude to Risk questionnaire is provided by Skandia. There are two reasons why we use the Skandia Attitude to Risk Questionnaire.

We have made a decision at a business level to use the Skandia / Watson Wyatt Asset Allocation in building our clients portfolios. It is therefore important that we use the Skandia attitude to risk questionnaire as the output of this feeds directly into the Skandia 1-10 Asset allocation Models.

Secondly by always using the Skandia Attitude to Risk questionnaire we are establishing a consistent basis for assessing Attitude to Risk.

We recognise that risk is a relative measure & it is therefore important that we educate clients about the relationship between risk and return. We demonstrate that for any given potential upside to a portfolio, there is a potential downside. We establish that in order to achieve the potential for higher upside, the client must also accept the potential for larger downside.

To this end the questionnaire forces a client to focus on what he / she can afford to lose, rather than what they wish to gain.

Finally, as we know, risk is a relative measure & therefore an individual’s attitude to risk will vary according to that individual’s expectation of the likelihood of a negative outcome.  It is therefore imperative that as a business we asses each of our clients’ Attitude to Risk on a regular basis.

To this end completion of a new attitude to risk questionnaire will be the first function of each annual client review.

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