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At National Financial Solutions we profile every potential client¶s

tolerance to risk before we make any investment recommendation.
The reason for this is simple-it ensures that we are recommending
investments that suit the individual.

 
 

Making investment decisions can be very stressful. Risk profiling can help you
make decisions that are suitable to you, as it is a method of measuring personal
tolerance to investment risk. In simple terms, how much risk an individual is
willing to make, or not make. Risk tolerance can be seen as the sum of all the
µfear/greed¶ trade-offs available. This includes trade-offs between making the
most of opportunities and securing financial well-being, between regret
avoidance over µlosses¶ incurred from taking too much risk, and over µgains¶
missed through not taking enough risk, and so on.

  

We ask you questions about your past investment experience (good and bad),
investment expectations from National Financial Solutions, investment time-
frame and also investment knowledge. This information is analysed to
determine what type of investor you are (e.g. aggressive [high risk] or
conservative [low risk]), and also how we should allocate your funds. Once we
have obtained your investor profile, we then examine the most suitable
strategy. Once we have decided on the strategy we then look at the investment
options available to you. This process results in your funds being invested
across many investment sectors so that they are fully diversified as to your
wishes and also your tolerance levels.

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There is an unwritten law in financial planning that could be paraphrased as follows: a client will readily take ownership of any
strategy that proves to be successful, but any recommendation that results in a less-than-satisfactory client outcome will, almost
certainly, be deemed to be the responsibility of the adviser.
This being the case, it is incumbent on the adviser to ensure that the client has a very clear understanding as to the exact reasons
for the implementation of any strategy. Logically, an essential component of this client education exercise is to explain to the
client how the recommendations are appropriate to the needs, goals and objectives they have outlined as part of the data gathering
process the adviser has undertaken with them.

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Traditionally, this process has included µrisk profiling¶, a process by which we attempt to match the client¶s tolerance to
investment risk to the strategies being recommended. However, there is a fundamental flaw in most traditional methods of risk
profiling. It is very difficult, if not impossible, to develop a series of questions the answers to which will clearly indicate what
types of investment are appropriate to a client¶s ability to accept investment risk, while still giving appropriate weight to their
financial objectives.
After all, as financial advisers, we all know what every client wants: high returns, low fees, low volatility and low (or no) tax.
Of course, none of us are able to deliver that (although, there are those among us who will indicate to their clients that they can).
The reality is that all we can do is assist the client to choose between being focused on the µjourney¶ or the µdestination¶. The
distinction is obvious. A client focused on the journey is the sort for whom risk profiling is an important tool, in that it helps us
determine just what sort of journey is appropriate to that particular client, irrespective of whether or not the chosen journey will
see them arrive at their desired destination.
The problem of operating in this particular fashion is that it renders the financial µadviser¶ as little more than an order-taker.
³Tell me how much volatility you are prepared to live with and I will build you a portfolio accordingly,´ could well be their
mantra. However, if we are to truly µadvise¶, then we need to help our clients focus on the µdestination¶.




The first step in this process is to actually assist the client to determine exactly what the destination should be. In other words,
what amount of wealth is required to be available at what point of time and to last how long. Once this destination is deemed
achievable and agreed upon, the adviser can then use their professional expertise to construct an appropriate portfolio and
manage this on behalf of the client. With their focus clearly on the destination, as distinct from the journey, the client can now sit
back and µenjoy the ride¶. Naturally, part of the review process needs to revisit the destination and ensure that it hasn¶t changed.
Otherwise, appropriate changes need to be made to the portfolio.
]nder the destination-focused advice model outlined above, traditional risk profiling methods are rendered superfluous. This is
because, having decided on where it is they wish to go, designing a portfolio based around the client¶s tolerance to risk is akin to
a person planning an overseas holiday telling their travel agent that they are afraid to travel by air or sea. It¶s either one thing or
the other. Yet how many financial advisers attempt to design financial strategies to meet clients¶ defined objectives while their
recommendations are hamstrung by a risk profile outcome that is not commensurate with the same objectives?
Fortunately for the travel agent, the Australian Federation of Travel Agents does not require them to assess the client¶s tolerance
to travel risk before designing a travel itinerary, for reasons that should be patently obvious! What a pity that the same
commonsense approach is not applied to the profession of financial planning. D


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The most common question a new client will ask when we begin the financial planning process is, ³What kind of returns can I
expect from your portfolio management?´ The answer depends on your risk tolerance, age, financial planning needs and
investment objectives.

In general, those that are under the age of fifty with medium risk tolerance will achieve between 9% to 11% per year. For those
over fifty-five or in retirement this can range from 7% to 9% depending on your specific financial planning needs and risk
tolerance. The recommended minimum investment planning time frame is
years.

     
          !
"

The amount of risk or variability of return you are willing to accept is a major determinant of your portfolio composition. Every
investor is an individual with different needs and different financial planning objectives. Whether your objective is wealth
preservation, asset growth or current income, it is critical to discuss them in detail with a knowledgeable financial planner. I will
help you determine whether you need investments that produce income, growth or a combination of both. It is also important to
understand your attitude towards financial planning and investment planning.

Another critical aspect of your risk profile is your investment planning time horizon²which focuses on retirement financial
planning. This is determined by when you will need to access your investments. It will seriously affect your financial planning
portfolio strategy. An investor with a longer time horizon can afford to assume greater short-term financial planning risk in
exchange for potentially greater long-term returns.

Stocks historically have experienced greater short-term volatility, but over the longer term, they have outperformed bonds and
other fixed income financial planning investments. If you have a longer time horizon, you may want to take advantage of the
opportunities provided by investing in stocks, In addition, regardless of the type of assets held in your portfolio, time is on your
side. The longer you hold any particular asset class, the less the variation in your financial planning return.

 # 

    "

Research has shown that the asset allocation decision ± how your investments are spread among asset classes such as Stocks,
Bonds, Reits, Commodities and Cash ± has by far the most
     on overall performance. This is why determining
the right asset allocation is critical to your investment planning and success. The world economy is ever changing, so your
investment allocation cannot be stagnate. This is one of the common downfalls I see with other investment managers and
individuals who manage their own investments.
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       !
 

"
As a knowledgeable portfolio manager, I diversify your investments across several asset classes by using multiple mutual funds,
etf¶s, stocks and bonds. I use the best performing mutual funds out of the 5, funds available to you. I chose the best managed
funds in their asset class. The funds are evaluated among their respective peers in their asset class based on a variety of
qualitative and quantitative factors including: management, experience, adherence to their stated class, long term performance,
low management fees, tax efficiency and other relevant factors.
  %c     "
As your investment manager, I monitor your portfolio as well as the underlying securities and the financial markets on a
continuous basis to assure your desired financial planning goals are being met. I rebalance your portfolio periodically instead of
being static with the same funds or stocks over the years. Keeping in mind your asset allocation and risk tolerance, your portfolio
will be flexible in order to take advantage of which asset class might outperform over the next six to twelve months.

 &c  

"

As your financial planner I will provide you with a brokerage statement on a monthly basis detailing the market value of
securities and transactions affecting your portfolio. You will receive an annual summary report on the performance and
investment outlook for the following year. Your performance and asset allocation will be summarized. Tracking your financial
planning results allows you to measure the progress against your stated investment planning objectives.

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, 2 1 at 12:  pm in the following categories: ]ncategorized. Post a
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This is a simple mechanism to increase visibility of risks and assist management decision
making. It is a graphical representation of information normally found in existing Risk Logs.
It is only one possible representation of a project¶s risk status. The Project Board may
choose to have an easy-to-read diagram, for example, included in the Highlight Report.

The profile shows risks, using the risk identifier, in terms of probability and impact with the effects of planned
countermeasures taken into account. The Project Manager would update this matrix in line with the Risk Log on a
regular basis. In the 3x3 and 6x6 risk matrix examples below, any risk shown above and right of the µrisk tolerance
line¶ (the thick red line below) should be referred upwards.
The tolerance line is set for the project by agreement between the Executive and Project Manager. As risks are
reviewed, any changes to their impact or probability which cause them to move above and to the right of the µrisk
tolerance line¶ need to be considered carefully and referred upwards for a management decision on the action to
take.