The Investment Risk Profiler (IRP) has been carefully designed to help financial advisers assess an investors’ appetite for risk, measured against their expectations of investment return. Using a series of mathematical assumptions, a “recommended” portfolio profile can then be produced which is shown in both numerical and pie-chart format.
The IRP is available as both a desktop and web-based solution, giving advisers the freedom to use it ‘on the move’ via a PDA or laptop. It is fully customizable and can be tailored to measure the risks of specific pension, investment or portfolio combinations.
Key Features
- Most risk analysis tools fail to link the output to a return expectation. This can lead to a client still believing that high returns can be achieved for low risk. The IRP removes this failure as tolerance to risk and return expectation scores are both used to arrive at an investment solution
- The IRP will flag concerns and/or decline recommendations where an investor sets an unrealistic goal and expects to achieve a high return for a correspondingly low risk
- The new tool also assesses how the client might respond behaviourally. In particular, the IRP judges whether the investor is likely to regret past investment decisions, where a more cautious investment approach should be taken
- It creates a complete audit trail for the IFA and client, particularly useful given the increasing regulatory framework which advisers have to work within
Risk Adviser Research Poll
In the most recent online research poll*, completed by over 200 advisers, over 70% claimed they were ‘very’ concerned about their client’s understanding or risk, with a further 26% claiming they were ‘somewhat’ concerned and none having no concerns at all. When asked what they would be most likely to use to help minimise this risk, the majority of advisers (72%) chose specialist technology, 17% specialist literature and 11% better training.
1st Software managing director, Mik Cons, says:
"Very simply, this investor risk profiler can more safely match clients’ expectations to a risk rated portfolio while providing the adviser with a documented audit trail. As the research has shown, we are confident that this extra functionality will be really well received by advisers and wealth managers, providing more protection for both the firms and their clients."
The Investment Risk Profiler allows advisers to ask the client 35 questions about their investment attitudes, as part of a three-stage assessment covering risk tolerance, expectation of return and decision styles.
There are three versions of the Investment Risk Profiler available:
1. Desktop Version: Developed in Microsoft .NET this is a stand-alone version of the tool which can be used on laptop computers for use in the client advice process. This version can be integrated seamlessly with other applications in your enterprise and is driven by XML for both input and output. Cost: from £25 per month per adviser (min 40)
2. Web Version: A .Net web native application that allows the client to interact with the tool and produce their profile on line. Designed for integration within an existing client extranet. Cost: from £5,000 per month per server installation
3. Adviser Office 2: 1st Software’s technology solution, used by over 10,000 advisers now integrates a version of the IRP tool as part of the new financial planning suite.
With the Sandler report criticising financial advisers’ approach to investment, the new tool offers a robust process that will support advisers who are trying to reduce the risk within their business and increase client service levels.
Derek Stewart, director of The Silent Partner, explains:
"The Investment Risk Profiler is an essential aid for all financial advisers involved in helping investment clients, particularly those needing wealth management, trustee investment, SIPPs and income drawdown advice. It should also provide clients with greater reassurance about their investment planning, as their adviser will be more aware of their particular needs and concerns than ever before. "
Ian McKenna, managing director of the Financial Technology Research Centre, comments:
“Many advisers are reluctant to be seen to be using technology in the advice process. But employing accepted scientific techniques to complement the adviser's own skills must be seen as a valuable way of providing additional value to clients. This new tool enables the adviser to obtain a more detailed understanding of a client's attitude to risk than any other UK-based software I have seen.”
