Client Risk Profile

8/7/2019 Client Risk Profile

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Client Risk Profile

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CLIENT RISK PROFILE

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General

Client Name(s)

Telephone

E-mail Address

Secion 1 - Investment Objectives

1) What is the intent of your portfolio? Please select the most appropriate one.

To generate income for today

To generate income at a later date

To provide for my dependents (I do not anticipate using these funds)

To fund a large purchase in the future

2) What is the major goal for your portfolio? Please select the most appropriateone.

To ensure that my portfolio remains secure

To see my portfolio grow and to avoid fluctuating returns

To balance growth and security, and to keep pace with inflation


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To provide growth potential, and to accept some fluctuation in returns

To provide the sole objective of potential long-term growth

Secion 2 - Personal Information

3) Which of the following ranges includes your age?

Under 3030-

3940

-495

0-5960-69

70-79

Over 79

4) Which of the following ranges best represents your current annual familyincome (including pensions) before taxes?

Under $30,000

$30,001 to $60,000

$60,001 to $90,000

$90,001 to $120,000

Over $120,000

5) After deducting any loan or mortgage balances, which one of the followingranges best represents your immediate family's overall net worth?

Under $30,000

$30,001 to $50,000

$50,001 to $100,000

$100,001 to $200,000

$200,001 to $300,000

Over $300,000

Secion 3 - Investment Horizons


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I will likely make a lump sum withdrawal and do not plan on makingcontributions

I will likely be making both contributions and withdrawals

I will likely make additional contributions and will not be withdrawing anyfunds

I will certainly make regular contributions and will not be withdrawing anyfunds

Secion 4 - Attitude Towards Risk

9) Which statement best describes your knowledge of investments?

I have very little knowledge and I rely exlusively on the recommendations offinancial advisors

I have limited knowledge of stocks and bonds, but i do not follow financialmarkets

I have good working knowledge and I regularly follow financial markets

I understand completely how different investment products work, including

stocks and bonds, and I follow financial markets closely

10) Realizing that there will be downturns in the market, in the event of asignificant loss, how long are you prepared to hold your existing investments inanticipation of a recovery in value?

Less than three months

Three to six months

Six months to 1 year

1 to 2 years

2 to 3 years

3 years or more


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11) Assuming that you are investing $100,000 for the long term, what is themaximum drop in your portfolio's value that you could comfortably tolerate in anygiven year?

I'd be uncomfortable with any loss

A $5,000 drop is all I could live with

A $10,000 decline is something I could tolerate

A $15,000 drop would be about all I could stand

A $20,000 decline is pretty much my limit

I could live with a decline of more than $20,000

12) Which of the following statements would you feel most correctly describesyour investment philosophy?

I can not accept any fluctuation in principal

I can only accept minimal fluctuations, and prefer to invest in safer, lowerreturn investments

I am willing to tolerate some ups and downs in the value of my investments toachieve overall higher returns in the long run

My main interest is high, long-term returns and I am not concerned aboutshort-term decreases in the value of my investments.

If you answered questions 11 or 12 with the first response, you should re-evaluateyour need for growth, and carefully consider it in light of your desire for stability.Portfolios with no ups and downs generally have no growth component. If you aresure you cannot tolerate loss (even short term), stop here. Consider usingguaranteed investments or short-term options like money market funds.

Secion 5 - Portfolio Volitility

Investment portfolios aimed at providing higher returns tend to have greater swingsin value (providing both gains and losses). The more aggressive your portfolios, themore pronounced these swings become, and the more often short-term losses canoccur.


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13) A portfolio is a basket of different investments. The returns earned by aspecific portfolio depend on the mix of investments that make up the portfolio. Thefollowing graph shows the probable range of returns (form best to worst) of fourhypothetical portfolios over a one-year period. In which of these portfolios wouldyou prefer to invest?

Portfolio A

Portfolio B

Portfolio C

Portfolio D

14) Some investors are more willing than others to accept periodic declines in thevalue of the portfolio as a trade-off for potentially higher long-term returns. Which

response best represents your feelings toward the following statement?

I am willing to exprience potentially large and frequent declines in the value of anyinvestment if it will increase the likelihood of achieving higher long term returns.

Strongly agree


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Agree

Disagree

Strongly disagree

Bottom of Form

Our Investment Philosophy

more in this section: Asset Classes

Risk vs Return

Emergency and short term funds

Why we recommend passive fund management where possible

Asset Allocation - Our Model Portfolios The Importance of Rebalancing

Professional Financial Planning Service

The information on this page is not a substitute for personal independent financial advice, andshould not be relied upon or construed as advice. Your investment approach will be dependanton your personal circumstances and we recommend you seek independent financial advicebefore embarking on a course of action.Our Investment Philosophy.

Invest for the longer term - we believe you should be an investor rather than a speculator.Diversify to reduce risk use different asset classesUse passive investment wherever possible For the reasons set out later we believe that passiveinvestment offers better prospects for most investors than active management.Use institutional asset class funds (where possible) with low costs which deliver better returns than

similar funds with higher chargesRebalance on a regular basis to retain a disciplined approach and a consistent risk profileThese points and the reasons behind them are expanded upon in this guide, which also explains thebenefits of Rutherford Wilkinsons Professional Financial Planning Service.

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Asset Classes
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The type of assets in which you invest will be the greatest influence on your final returns, how risky yourinvestment behaves, and ultimately, whether you achieve your objectives.

There are four basic asset classes which are as follows:

Cash: This is money which is held on deposit, where interest is paid and the nominal value of the capitalis very secure, but there is no prospect for growth in the value of the capital.

Fixed Interest Securities:These are effectively loans. They pay interest at a fixed rate and return theloan capital at a fixed date in the future (the redemption date).Gilts are loans to the Government.

Corporate bonds are loans to companies, and therefore carry a risk of default, which is rewarded byhigher interest, related to the strength of the company.

Another type of bond which can offer diversity and protection against inflation is an index-linked bond,which are usually only issued by governments and offer protection against inflation in both the interestthey pay and the capital return.

Property: In investment terms this usually refers to commercial property, eg retail (shops), office,industrial etc.

Residential property tends to be more volatile than commercial property, and the risk of a break betweentenants can be higher. Since a substantial part of most investors wealth is often tied up in the home inwhich they live, it is usually better to consider commercial property investments

Equities:These are shares in the ownership of companies, and entitlement to the future profits of thosecompanies.As an investment equities can be broken down further into shares in different countries, sectors (eg:telecommunications, banks, construction, leisure etc), size of company and varying growth prospects.

Different types of share will prosper in different economic conditions.

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Risk vs Return

The table below shows how the four main asset classes have performed, in percentage terms, over thelast nine years. It can be seen that the three years 2000, 2001 and 2002 were particularly hard onequities, but better for property and bonds.

Source of information: Financial Express (UK Shares=Legal & General UK Tracker, Property =NU Property Unit Trust, Bonds=Legal &General All Gilt, Cash=Legal & General Cash fund)
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Overall these factors have substantially increased the risk of investing in active managers and we havefound that this higher level of risk is not reflected in any significant greater returns for our clients. In short,there is no reliable way of identifying which fund managers are going to get it right in the future, and evenif we did find such a manager, the chances are he or she would have moved on before we were able tobenefit.

By using passive investment funds we therefore have the following advantages:

As passive funds operate a buy and hold strategy, trading costs are reduced substantially.

Fund management charges are reduced, as there is no star fund manager to pay

Reduced transaction costs, as no need to review funds when managers move

A balance between Index tracking and the 'Dimensional' approachThe vast majority of passive management is centred round the tracking of various indices. This maypresent a number of investment problems as follows:

The weighting of funds towards the larger constituents in the index. For example, the top 10

companies in the UK market constitute around 50% of the FTSE 100 index and 40% of the FTSE allshare index.

Index-tracking funds must buy and sell companies as they enter and leave the index, usually all atthe same time, and quite possibly the wrong time.

In markets, including smaller companies, the necessity to purchase potentially illiquid stocks

Unchecked, the potential problems above could lead to reduced returns from your portfolio. We thereforesupplement standard all-share index tracking funds with passive funds from Dimensional Fund Advisers.

Dimensional Fund Advisers adopts a scientific and pragmatic approach managing funds in a disciplinedand structured way to enable investors to enjoy the benefits of passive investment but with sufficient

pragmatism to avoid large company bias and rigid trading parameters. Dimensional funds are availableonly via fee-based financial advisers. They do not pay introductory commissions, standing or falling onlyon their ability to manage their funds.

Academic research by Professors Fama and French studied the returns achieved by 'growth' and 'value'types of shares, and the shares of larger and smaller companies. These returns were studied over manytime periods and many decades of data were used. The research showed that, whilst there will be periodsof time when growth and large companies outperform, these periods are in the minority. Over most timeperiods, and importantly when shares are held for the longer term, smaller and value shares rewardinvestors with higher returns than large and growth shares.

Whilst the Dimensional funds invest in all areas of the market, there is a bias towards smaller and valueshares compared with the market as a whole.

There will therefore be periods of time when the funds under-perform the market as a whole, but over thelonger term the lower charges and the slight bias to smaller and value style companies should provide agreater likelihood of higher long term returns.

Fixed Interest InvestmentWithin fixed interest investment, we have identified that based on the evidence of past returns, theadditional risk involved in investing in corporate bonds rather than gilts is not rewarded by sufficientadditional returns, over the longer term. Our fixed interest investment is therefore restricted to short datedbonds and index-linked gilts. This evidence is supported by Dimensional's own research.


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PropertyThe reason for including property in the portfolio is to reduce volatility, by providing a part of the portfoliowhich may perform well when other areas such as equities and fixed interest might be underperforming.

Property is an area where passive investment is less possible, as the desirable aspects of commercialproperty investment are only available from investment directly in bricks and mortar.

The desirable factors required from a property fund are as follows:

Low volatility

Large fund size for increased diversification

Low charges

Low cash holdings

Holdings in 'bricks & mortar' preferred, due to lower volatility

Historic relative performance

Where our portfolios invest in property, we use two funds, for diversification purposes. Both funds areselected with the above objectives.

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Asset Allocation - Our Model Portfolios

We have designed six portfolios, each with a different balance between risk and potential reward. Theseare as follows:


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The funds used for each portfolio are the same, but the proportions used differ according to the exposure

required to each asset class.

A key part of our advice process is the completion of a detailed risk profiling questionnaire which we willuse to establish which of the above portfolios is most suitable for you as an investor.

The Finametrica Risk Profiling system is a sophisticated tool helping us to determine clearly where yourboundaries lie in terms of what level of volatility you are prepared to accept.

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A Summary Risk Profile is a simple mechanism to increase the visibility of risks; it is a graphical

representation of information normally found on an existing Risk Register. In some industry sectors it

is referred to as a risk map. The project manager or risk manager needs to update the Risk Register

on a regular basis and then regenerate the graph, showing risks in terms of probability and impact

with the effects of mitigating action taken into account. The Summary Risk Profile illustrated below

shows all key risks as one picture, so that managers can gain an overall impression of the totalexposure to risk. It is essential for the graph to reflect current information as documented in the Risk

Register. The profile must be used with extreme care and should not mislead the reader. If an

activity has over 200 risks it will be impractical to illustrate all of the risks. It will be more appropriate

to illustrate the top 20 risks, for example, making it clear what is and is not illustrated.

A key feature of this picture is the risk tolerance line, indicated here as a bold line. It shows the

overall level of risk that the organisation is prepared to tolerate in a given situation. If exposure to

risk is above this line, managers can see that they must take prompt action such as upward referral of

relevant risks. Setting the risk tolerance line is a task for experienced risk managers; it reflects the

organisations attitudes to risk in general and to a specific set of risks within a particular project. The

parameters of the risk tolerance line should be agreed at the outset of an activity and regularly

reviewed.

The use of RAGB (Red, Amber, Green, Blue) status can be useful for incorporating the status

reporting from Risk Registers into risk profiles, and can provide a quick and effective means of

monitoring

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The Importance of Rebalancing

A key part of our Professional Financial Planning service is rebalancing the portfolio at a regular review.

This introduces a discipline to the investment process which saves the investor from two potential pitfalls,which tend to occur when rebalancing doesnt take place, namely:

1. The risk profile of the portfolio drifts over time

2. Most people tend to buy when markets are rising, and sell when they are falling

To demonstrate these points, let us consider examples of the effects of differing returns over two differenttime periods.

Risk Profile Drift 2003 to 2007Firstly assume a portfolio is invested at the beginning of 2003, with a 50:50 split between equities andfixed interest investments. Assuming market returns, the balance would have altered as below by 2007:

The balance of the portfolio after a few years has a significantly higher risk profile. During 2008, equitieswere severely affected by the credit crunch, meaning that the over-exposure of the portfolio to equitieswould have meant the additional risk adopted was punished.

Rebalancing each year ensures that as markets rise, profits are consolidated into other assets, keepingthe risk profile of the portfolio as intended.

Buy Low, Sell High - 2002 to 2003


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Where rebalancing becomes an even more important discipline is where assets have fallen in value. If ourinvestment had been made at the beginning of 2002, it would have drifted as follows, as equities fell by23% during that year:

Successful investment is summed up in a simple phrase: Buy low Sell high. Whilst this adage may beeasy to say, the majority of investors in practice actually do exactly the opposite. When stock-markets are

rising, or have risen, people are drawn to invest, ignoring the risks which seem worthwhile when thingsare going up.

However, when markets fall, which they inevitably will from time to time, investors tend to become fearfuland either sell or stay away from equities, at exactly the time when they should be buying.

By rebalancing at the end of 2002, we are 'buying low', and allowing more of the fund to benefit from thebounce in equities when they recover, thereby participating in the rise in the market. Equities rose 20% in2003.

Rebalancing on a regular basis, preferably annually, therefore:

1. Maintains the risk profile of the portfolio

2. Introduces a 'buy-low, sell-high' discipline to the investment

The Professional Financial Planning Service is an ongoing commitment on our behalf to revisit yourinvestments on a regular basis and, if necessary, rebalance your portfolio in accordance with your riskprofile.

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Professional Financial Planning Service

Rutherford Wilkinson offers you the Professional Planning Service, which puts into practice theinvestment philosophy set out in this document.

This includes the following:

A Minimum Of One Annual Face To Face Meeting (If Appropriate)

The RWLtd 12 Point Financial Health Check For Protection & Investment

Re-Balancing of Asset Allocation at agreed intervals

Monitoring And Evaluation Of Original Investment Funds

Biannual Written Portfolio Valuations

Annual Written Tax Summary Where relevant

Online Access To 'Wrap Platform' Where Appropriate

Review Of Other Investment Opportunities Upon Request

Remove the Hassle Service

Review Your Documents To Minimise Paperwork Wherever Possible.

Priority Response & Availability

Additional Face To Face Meetings Available On Request

Unlimited Access To Your Adviser During Normal Business Hours Via Telephone Or Email - We aimto return all phone calls and emails within one working day.

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risk profile

Your risk profile indicates the level of volatility you would be comfortable with. It helps the Financial Planner identifythe appropriate mix of various asset classes in your investment portfolio.

Although diversifying into all asset classes is recommended for most clients, your risk profile will help assess the

proportion of each asset class in the total investment. This is due to the fact that all asset classes have varyingdegrees of volatility and return associated with them.


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Your risk profile is assessed through a series of questions and situations presented to you. It is important that youthink and respond to these questions correctly.

Along with the investment time frame and your objectives, the risk profile becomes one of the important factors thatwill greatly influence the returns you can expect from your investment.

Time and circumstances can also change your risk profile.

hese pages provide generic information about various aspects of financial services and provide someideas and indicators about possible areas of need. We hope they are helpful but they do not, on theirown, add up to proper investment advice and we cannot take responsibility for anything you do inreliance on them without further discussion with us. Do not make a decision based upon the informationcontained within these pages alone. They are not detailed or comprehensive enough to enable you to

make a correctly informed decision

See Also

Risk v reward

Unit Trusts

OEICs

Investment Trusts

Government Gilts

Corporate Bonds

Risk V Reward

Different people have different attitudes to risk. You need to be clear about the degree of risk you arewilling to accept before undertaking any kind of investment. The following is an example of a Risk/Rewardprofile
http://www.eib.co.uk/oeics.htmlhttp://www.eib.co.uk/oeics.html


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Risk Profile

These risk categories are for guidance only. Your personal advisor may have chosen different waysof categorising risk

Different people have different attitudes to risk

You need to be clear about the degree of risk you are willing to accept

This is a difficult area as everyone views risk differently

There is a balance between risk and potential return generally speaking higher risk investments

usually mean that higher returns may be possible BUT also the risk of losing money is alsoincreased.

Lower risk generally means lower returns but a lower risk of losing money nothing is ever set instone though!

Risk is also related to how long investment is undertaken. With stocks and shares you should betaking a longer term view most commentators advise that a 5 year investment time frame is wise

Risk can also be in terms of how you invest. Investors wishing to minimising risk would consider abroader investment spread as opposed to investment in a specialist area

Remember past performance is not a guide to future returns. The value of investments and the incomefrom them can go down as well as up. The level of tax benefits and liabilities will depend on individual

circumstances and may change in the future. Exchange rate fluctuations may cause the value ofunderlying overseas investments to go down as well as up. Some Funds investing in specialist sectors or

areas carry greater risks due to the potential volatility of market sectors into which the funds invest.

You should not invest without consulting a Key Features Document and supporting literature. If you are inany doubt about the suitability of this Investment you should also contact us before investing.

Unit Trusts

Unit trusts are a popular investment vehicle, and in their more recent format they are more usually

referred to as 'open ended collective investments' which put the cash of many investors into one fund a'pooled fund'. This system allows investors to invest "collectively" which has the benefits of spreading andreducing risk and keeping costs under control. Unit trusts allow you to invest in the stock market butenable you to spread your risk and benefit from expert investment management.


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There are many unit trusts to choose from across a wide range of investment sectors. The managers ofthe trusts can buy and sell within the trust without having to pay any tax, however tax liabilities can arise

on dividends and unit sales by the holder.

The LS Wealth Management ServiceInvestment Portfolios

With the whole of market at your disposal, there is extensive scope for investment selection to meet any changes inyour investment goals.

The portfolio that you will be allocated will reflect your attitude to risk. Thus if you are risk averse you will havemore of the safer type assets. If you are comfortable with risk, you will have more of the riskier asset classes.

Example Portfolios

Lower Risk

Risk Profile 3

Higher Risk

Risk Profile 8

Source:Selestia Asset Allocation. Asset allocation performed 08/09/2006. Collective Investment Account, Growth/Bespoke Investor

Using strict criteria, such as risk and volatility ratings, tenure of manager and past performance, we have created 10investment portfolios. As our advice is based on your specific needs and attitude to risk, we can thereforerecommend to you the most suitable funds or portfolio based on your investment objectives.

Many times on this blog, I have mentioned that my investing style is very much objective

driven. I tend to follow the systemic approach. Whenever I think about my investments, I

tend to look at from the full portfolio investments perspective. In addition, I also believe in

continuous evolution, and hence I make changes as I learn more about any aspects of

investing. Readers of this blog will find that I do not talk about mutual funds. Thats because

I am not a fan a mutual funds.

In this post, I am providing an overview of my investment buckets. These buckets address

my long term investment risk profile for 10+ years and beyond. This description is not


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related to asset allocation or diversification. The graphic below provides an schematic for

overall perspective.

TIP Guy's Investment Buckets

Portfolio 1: Index-Based Fund (30%)

The objective of this first portfolio is to replicate the general market performance. I believe

that in 10 years and beyond, the BSE SENSEX, NIFTY, and other indexes, will be higher

than today. At the time of this writing I am not I am invested in any of the index based low

cost funds. I am still evaluation and investigating the good investment vehicle. While I amwaiting to make a decision, I am allocating regular cash to this portion of my target and the

fund is getting accumulated in savings and CDs. My main issue here is a lack of good low

cost index fund.

Portfolio 2: Opportunity Portfolio (20%)

This is my second portfolio which solely focuses on capital appreciation. These are mostly

value-based investments. Here I invest in companies which I believe are undergoing short-

term difficulties but are worthy of long term investment. Limiting myself to 20% helps me

reduce the risk of over exposure in risky stocks.

Portfolio 3: Dividend-Focused Portfolio (50%)

The third portfolio is allocated to income producing dividend-based investments. Theobjective of this portfolio is to generate increasing passive cash flow and long-term capital

appreciation. The total target allocation is 50% of my portfolio investments. All of the

positions shown on my holdings page are all related to this part of my portfolio.

Majority of the discussion on this blog will be on my dividend-focused portfolio (i.e. Portfolio

3). Depending upon the relevance of a given topic or investment vehicle, occasionally, I

may also discuss about my other two portfolio investments.

How do you define and maintain your investments buckets?


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Related Posts You May Like to Read:

Income Portfolio: Guiding Principles and Framework

Financial Turmoil Explained

Eight Companies Confident to Raise Dividends for Shareholders

NIFTY Expected Returns for Different Trading Time Scales

Common Investing Mistakes of Individual Investors
http://www.tipblog.in/strategy/income-portfolio-guiding-principles-and-framework/http://www.tipblog.in/commentary/financial-turmoil-explained/http://www.tipblog.in/dividends/eight-companies-confident-to-raise-dividends-for-shareholders/http://www.tipblog.in/analysis/market-returns-for-three-different-trading-time-scales/http://www.tipblog.in/education/common-investing-mistakes-of-individual-investors/http://www.tipblog.in/strategy/income-portfolio-guiding-principles-and-framework/http://www.tipblog.in/commentary/financial-turmoil-explained/http://www.tipblog.in/dividends/eight-companies-confident-to-raise-dividends-for-shareholders/http://www.tipblog.in/analysis/market-returns-for-three-different-trading-time-scales/http://www.tipblog.in/education/common-investing-mistakes-of-individual-investors/

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