Risk Profiling Flashcards
1
Q
Benefits of risk profiling
A
- simple process to understand
- helps them understand the level of risk they are individually prepared to take
- can be used to establish different risk profiles for different objectives
- can be used to create appropriate asset allocation model
- establish maximum tolerance for loss
2
Q
Specific factors influencing clients ATR
A
- life expectancy
- health /family health issues
- adequate emergency fund
- David has realised a large sum from sale of house
- David has more investment experience than June
- June has few assets in her name
- clients thoughts on economic /market conditions
- tolerance for loss
- capacity for loss
3
Q
Risk profiling process
A
- clients complete a questionnaire
- results fed into a computer programme
- this generates a risk score
- score used to produce a recommended asset allocation
- results discussed with client to ensure it meets their representation of risk
- once all agreed, the assets are allocated
4
Q
Drawbacks of risk profiling
A
- doesn’t take account of taxation issues, charges or that different software systems can produce different risk profiles
- based on historic data
- only accurate for one moment in time