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
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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
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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
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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
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