Our Risk Assessment Process
To help us identify the right level of investment risk for you personally, we use a risk assessment process which covers three main steps:
- Completion of a psychometric evaluation which is in the form of a risk questionnaire
- An assessment and a discussion of the results and confirmation of your main investment objectives
- Allocation of an Investor Risk category for the ongoing management of your investments
Risk Questionnaire
The starting point of the risk assessment process is the completion of our risk questionnaire, which is designed to help determine the level of investment risk you are willing and able to take. This has been developed by Distribution Technology Ltd, a leading company within the field of risk assessment and risk modelling. Distribution Technology (DT), through their Dynamic Planner software, have a risk scale from 1 (the lowest risk) to 10 (the highest risk), which we use to map to our range of managed solutions.
This part of the assessment process will cover:
- Your capacity for loss - how much you could lose, if anything, before it would affect your standard of living,
- Your investment time horizon - how long you expect to hold your investments
- Your risk aversion - how much risk you are able and willing to take in meeting your objectives.
Asset Diversification
Different investments classes (asset classes) are commonly used to build a suitable risk adjusted investment solution. The asset classes tend to perform differently through investment cycles and carry different levels of risk, so using them together in varying proportions aims to spread investment risk, hopefully reducing portfolio volatility and achieve the desired risk/return objectives.
Each of the investor risk profiles provided by the assessment questionnaire results corresponds to an 'asset model' which can be used as a starting point to finding a suitable investment solution, with the aim of maximising returns for the agreed level of risk.
The result of this questionnaire provides an indication of your natural risk inclination and tolerance. We use this as a basis for discussions about investment risk and reward and to ensure that we have explained and you have understood the main issues surrounding investment risk.
Your answers, alongside other information we gather about you; your existing investments and our wider discussions about risk then help us choose a risk level which we both agree is suitable for your needs and risk tolerance.
Risk Assessment Results
Your overall risk profile describes your general risk outlook and indicates the level of risk you are normally prepared to take, although, you may decide to take more or less risk or have different risk targets for specific investment goals.
Allocation of an Investor Risk Profile Category
We will then move on to the last part of our process the allocation of a risk band level, on a DT scale of 1-10, based on the above, on which we can recommend and maintain a suitable portfolio of investments and managed solutions to meet your needs.
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