Assessing a client's desired return and risk perception
A diversified investment portfolio consists of defensive and risky assets that can be classified into cash, fixed interest, shares, property and alternative assets (hedged funds, futures).It is important to assess the investor's tolerance to fluctuations in investment returns (risk/return trade off - client's risk tolerance) and the risk of capital loss (client's risk capacity). This is key to our investment advice as we are seeking risk adjusted returns.
There are various methods available. Lyfords advisers use a detailed psychometric testing programme. It is a comprehensive financial risk tolerance test from FinaMetrica which gives reliable in-depth insight into a clients' financial attitudes, values, motivations, preferences and experiences. It uses a scientifically validated approach and helps to remove investment adviser bias. The client does have input into this discussion.
You will be provided with a link to the Finametrica web site, user id and password to allow you to complete the questionnaire on-line. This takes about 15 minutes to complete. On completion you can access the completed report directly.