Assessment of Risk
Understanding investment risk is the key to how we manage each client’s portfolio. The starting point is always the accurate identification of a client’s risk profile, which considers both risk tolerance and capacity for risk. With extensive experience and expertise in this field, let us help you manage your wealth through thorough investment risk management.
What we mean by risk attitude is each client’s willingness to risk a less favourable outcome in an attempt to achieve a more favourable outcome – this is the classic “risk/return trade-off”.
However, risk capacity is about the ability to sustain a less favourable outcome without compromising the original goals and timescales. As a result, risk capacity is affected by:
- Time horizons and the extent to which they can allow for the recovery of falls in value
- Total wealth, which can act as a cushion to adverse outcomes
Further information about Financial Planning:
Financial AdviceNews & Case Studies
The pandemic’s financial planning boostPosted in Financial Planning, Fiducia News (+2 more), on 26.04.21 Read While the pandemic has wrought much damage financially to families, individuals and businesses, it’s worth looking closer at...
Guest Editor: Things to consider for your Tax Return 2020/21Posted in Financial Planning, Financial Advice (+2 more), on 19.04.21 Read This month’s guest blog post comes from Lucy Orrow, Senior Tax Manager at Lambert Chapman LLP Lucy has compiled a list of...
Team Talk – Cheryl BournePosted in Financial Planning, Fiducia News (+2 more), on 12.04.21 Read There are many things that make Fiducia a little bit different, such as our beautiful location in the heart of the Dedham Vale...
Whether you are looking to generate income from investments or put something aside for later life, sound financial planning is the cornerstone of success.
With our award-winning team of expert advisers, Fiducia Wealth helps you see the bigger picture on all financial matters. We offer comprehensive, impartial, personalised financial planning advice that gives you the benefit of our professional expertise at every step of your investment journey.
Unlike the financial advice you might receive from a bank manager or fund manager, which typically considers one or two subjects in isolation at a single point in time, our financial planning services are an ongoing long-term process based around a complete financial outlook.
Our specialists will help you to develop a holistic plan, which will inform all future financial decisions. By weighing up the risks and rewards of each action in the context of broader goals, we ensure you stick to a course that prioritises long-term success over short-term gains.
By the same token, by regularly reviewing performance, we will always be in a position to recommend switching strategies when new and better opportunities arise.
The Financial Planning Cycle
Our financial planning advice service operates as a cyclical process, starting out with the formation of an initial plan which is then subject to regular review. We follow a six step approach as outlined below:
- Initial Fact Finding Meeting: The initial meeting is as much an opportunity for you to find out about us as it is for us to start gathering the personal and financial information we need about you. At this stage, that information will look very much like a personal balance sheet.
- Personal and Financial Goals: In order to develop a plan that meets your financial aspirations, we need to know what your goals are. At this stage we will aim to agree on your priorities, sketch out initial courses of action and also begin liaising with other professionals, such as lawyers and accountants, as necessary.
- The Analysis: Once the fact finding and discussion phases have been completed, then it is up to us to analyse the facts and develop your risk profile. Determining the right level of risk exposure in the context of your long-term objectives is a crucial step, since much of the subsequent decision-making process will be based on this assessment of risk.
- Draft Report: We will prepare a draft report containing our full analysis and proposals, which will form the basis of a final round of discussions with you.
- The Final Report: Once we have reached agreement on our draft proposals, we will prepare the final report, outlining in full your long-term financial objectives, priorities, actions to be taken and the involvement of other professionals, leading to implementation of the agreed plan.
- Annual Meeting: Each year we will arrange a meeting with you to revisit the preceding steps in order to review and monitor performance of strategies over the previous 12 months, re-assess and make changes as necessary.
Financial Risk Management
Assessment of risk is a key part of our financial planning approach. Every client we work with has different goals and aspirations, some long-term, some short-term, some focused on making significant gains from their investments, others more inclined to protect their existing assets.
We base our financial planning advice on determining levels of risk that fit with your overall goals. If our assessment of the risk involved in an investment puts it outside an acceptable range for your objectives, we will advise you to look elsewhere.
However, we also understand that priorities and objectives change over time, which is why we will review your unique profile annually.
We manage our financial planning services through Fiducia Mastertrust, an integrated online investment platform which provides 24 hour online access to your portfolio.
Each client wishing to make use of our long-term financial planning advice gets their own Mastertrust account, providing complete visibility on the performance of all investment assets via a secure online portal.
Assessment of Risk
Risk plays a pivotal role in financial planning and wealth management. At Fiducia Wealth, we place the thorough and accurate ongoing assessment of risk at the very heart of our investment strategies.
Our aim is to ensure every portfolio strikes the optimum balance between preservation and gain.
All investment vehicles carry an element of risk, but to differing degrees. As a rule of thumb, the higher the risk, the higher the potential rewards, with the proviso that you could end up with no return at all.
Fiducia Wealth works on the basis that every client is unique and, as a result, each client will have different objectives for what they want to achieve with their money. People who are concerned with preserving existing wealth will have a very different view to risk compared with those who view investment as a way to generate potentially substantial gains.
Our experienced and professional advisers start every relationship with an assessment of risk because it is important for us to know that our recommended strategies fit with a client’s personal goals and expectations. Your risk profile is determined by evaluating your financial circumstances and long term ambitions and becomes a defining principle for any advice which is then given.
Creating a risk profile
When we carry out an assessment of risk, we focus on three areas:
● Attitude to risk: It is important to know how each of our clients feels about risk. Regardless of financial circumstances or ambitions, some people are more cautious than others. This is something we need to know from the outset.
● Risk capacity: We base our judgement of a client’s capacity for risk on their current financial circumstances and their long-term financial goals. This boils down to evaluating how much financial loss you could absorb while still remaining on course to achieve your objectives. The key variables here are timescales and existing wealth. The longer term your financial objectives are, the more scope you have to recover from losses, which pushes the risk capacity up. Similarly, the greater the wealth you have already accumulated at any given point, the greater the losses you can absorb.
● Risk tolerance: This is something of a synthesis between subjective attitudes to risk and objective capacity calculations. Working out mathematically how much loss a client could absorb is different to the level of loss they might be prepared to take in pursuit of a broader objective. We seek to establish a compromise position with each client so there is complete clarity as to where all financial planning is heading.
Once we have developed a detailed risk profile, we are then in a position to start recommending investment strategies which fit within the given risk mandate. Since this is always part of a long term strategy, we will periodically review risk assessments as clients’ circumstances and objectives change.