Understanding your attitude towards investment risk, reward and volatility is an important step before making any investment decision.
In recent years, the assessment of a risk profile has become a more sophisticated exercise, with advisers introducing computer tools to fully understand risk tolerance.
Informed Choice chartered financial planner Nick Bamford was featured in an article in the Times today, talking about the use of risk profiling tools.
Nick Bamford, of Informed Choice, agrees that a test can be a great starting point because it ensures that the client is not “led” by the adviser’s face-to-face questions. He adds: “The danger of a chat without a test is that I end up imposing my own world view on things.”
Mr Bamford says that in one case a client whose results showed her to be “very cautious” had 98 per cent of her portfolio in shares. He says: “Having a printout helped me to explain why she needed a safer balance, which, happily, she accepted.”
Nick goes on to warn about the use of product provider sponsored risk profiling tools, as the providers behind these often have vested interests and hidden agendas.
Here at Informed Choice we use a risk profiling tool that is part of the Dynamic Planner tool from Distribution Technology. It is the same software we use to analyse the existing asset allocation of an investment or pension portfolio before comparing this to the target allocation for that investor.
You can read the Times article in full here. Do contact us if you would like to find out more about how we assess attitudes towards investment risk, reward and volatility to ensure a suitable investment strategy.
