Client Risk Profile

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CLIENT RISK PROFILE

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General

Client Name(s)

Telephone

E-mail Address

Secion 1 - Investment Objectives

1) What is the intent of your portfolio? Please select the most appropriate one.

To generate income for today

To generate income at a later date

To provide for my dependents (I do not anticipate using these funds)

To fund a large purchase in the future

2) What is the major goal for your portfolio? Please select the most appropriate
one.

To ensure that my portfolio remains secure

To see my portfolio grow and to avoid fluctuating returns

To balance growth and security, and to keep pace with inflation

 To provide growth potential, and to accept some fluctuation in returns

To provide the sole objective of potential long-term growth

Secion 2 - Personal Information
3) Which of the following ranges includes your age?

30- 40 5 60- 70-

Under 30 Over 79
39 -49 0-59 69 79

4) Which of the following ranges best represents your current annual family
income (including pensions) before taxes?

Under $30,000

$30,001 to $60,000

$60,001 to $90,000

$90,001 to $120,000

Over $120,000
5) After deducting any loan or mortgage balances, which one of the following
ranges best represents your immediate family's overall net worth?

Under $30,000

$30,001 to $50,000

$50,001 to $100,000

$100,001 to $200,000

$200,001 to $300,000

Over $300,000
Secion 3 - Investment Horizons
Investors often have distinct phases in their investment plans. The initial phase is
savings and growth. During this time an investory builds up a portfolio toward a
future goal. The second phase is typically the use of funds, either for a specific
purpose or for income.

6) When do you anticipate using these funds?

Immediately

1-3 years

4-5 years

6-10 years

11-15 years

16-20 years

More than 20 years

7) At the time you need this money, when will you withdraw it?

All at once in one lump sum

Over a period of less than 2 years

Over a period of 2-5 years

Over a period of 6-9 years

Over a period of 10-15 years

Over a period of more than 15 years

8) What are your intentions regarding withdrawals and/or contributions to your
investments today and over the next five years?

I plan to withdraw money at regular intervals and do not plan on making

contributions
 I will likely make a lump sum withdrawal and do not plan on making
contributions

I will likely be making both contributions and withdrawals

I will likely make additional contributions and will not be withdrawing any
funds

I will certainly make regular contributions and will not be withdrawing any
funds
Secion 4 - Attitude Towards Risk
9) Which statement best describes your knowledge of investments?

I have very little knowledge and I rely exlusively on the recommendations of

financial advisors

I have limited knowledge of stocks and bonds, but i do not follow financial
markets

I have good working knowledge and I regularly follow financial markets

I understand completely how different investment products work, including

stocks and bonds, and I follow financial markets closely
10) Realizing that there will be downturns in the market, in the event of a
significant loss, how long are you prepared to hold your existing investments in
anticipation of a recovery in value?

Less than three months

Three to six months

Six months to 1 year

1 to 2 years

2 to 3 years

3 years or more
11) Assuming that you are investing $100,000 for the long term, what is the
maximum drop in your portfolio's value that you could comfortably tolerate in any
given year?

I'd be uncomfortable with any loss

A $5,000 drop is all I could live with

A $10,000 decline is something I could tolerate

A $15,000 drop would be about all I could stand

A $20,000 decline is pretty much my limit

I could live with a decline of more than $20,000

12) Which of the following statements would you feel most correctly describes
your investment philosophy?

I can not accept any fluctuation in principal

I can only accept minimal fluctuations, and prefer to invest in safer, lower
return investments

I am willing to tolerate some ups and downs in the value of my investments to

achieve overall higher returns in the long run

My main interest is high, long-term returns and I am not concerned about

short-term decreases in the value of my investments.
If you answered questions 11 or 12 with the first response, you should re-evaluate
your need for growth, and carefully consider it in light of your desire for stability.
Portfolios with no ups and downs generally have no growth component. If you are
sure you cannot tolerate loss (even short term), stop here. Consider using
guaranteed investments or short-term options like money market funds.
Secion 5 - Portfolio Volitility
Investment portfolios aimed at providing higher returns tend to have greater swings
in value (providing both gains and losses). The more aggressive your portfolios, the
more pronounced these swings become, and the more often short-term losses can
occur.
13) A portfolio is a basket of different investments. The returns earned by a
specific portfolio depend on the mix of investments that make up the portfolio. The
following graph shows the probable range of returns (form best to worst) of four
hypothetical portfolios over a one-year period. In which of these portfolios would
you prefer to invest?

Portfolio A

Portfolio B

Portfolio C

Portfolio D

14) Some investors are more willing than others to accept periodic declines in the
value of the portfolio as a trade-off for potentially higher long-term returns. Which
response best represents your feelings toward the following statement?

I am willing to exprience potentially large and frequent declines in the value of any
investment if it will increase the likelihood of achieving higher long term returns.

Strongly agree
 Agree

Disagree

Strongly disagree
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Our Investment Philosophy

more in this section:
• Asset Classes
• Risk vs Return
• Emergency and short term funds
• Why we recommend passive fund management where possible
• Asset Allocation - Our Model Portfolios
• The Importance of Rebalancing
• Professional Financial Planning Service

The information on this page is not a substitute for personal independent financial advice, and
should not be relied upon or construed as advice. Your investment approach will be dependant
on your personal circumstances and we recommend you seek independent financial advice
before embarking on a course of action.
Our Investment Philosophy.

Invest for the longer term - we believe you should be an investor rather than a speculator.
Diversify to reduce risk – use different asset classes
Use passive investment wherever possible – For the reasons set out later we believe that passive
investment offers better prospects for most investors than active management.
Use institutional asset class funds (where possible) with low costs which deliver better returns than
similar funds with higher charges
Rebalance on a regular basis to retain a disciplined approach and a consistent risk profile
These points and the reasons behind them are expanded upon in this guide, which also explains the
benefits of Rutherford Wilkinson’s Professional Financial Planning Service.

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Asset Classes
The type of assets in which you invest will be the greatest influence on your final returns, how risky your
investment behaves, and ultimately, whether you achieve your objectives.

There are four basic asset classes which are as follows:

Cash: This is money which is held on deposit, where interest is paid and the nominal value of the capital
is very secure, but there is no prospect for growth in the value of the capital.
Fixed Interest Securities:These are effectively loans. They pay interest at a fixed rate and return the
loan capital at a fixed date in the future (the redemption date).
Gilts are loans to the Government.

Corporate bonds are loans to companies, and therefore carry a risk of default, which is rewarded by
higher interest, related to the strength of the company.

Another type of bond which can offer diversity and protection against inflation is an index-linked bond,
which are usually only issued by governments and offer protection against inflation in both the interest
they pay and the capital return.

Property: In investment terms this usually refers to commercial property, eg retail (shops), office,
industrial etc.
Residential property tends to be more volatile than commercial property, and the risk of a break between
tenants can be higher. Since a substantial part of most investors’ wealth is often tied up in the home in
which they live, it is usually better to consider commercial property investments

Equities:These are shares in the ownership of companies, and entitlement to the future profits of those
companies.
As an investment equities can be broken down further into shares in different countries, sectors (eg:
telecommunications, banks, construction, leisure etc), size of company and varying growth prospects.

Different types of share will prosper in different economic conditions.

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Risk vs Return
The table below shows how the four main asset classes have performed, in percentage terms, over the
last nine years. It can be seen that the three years 2000, 2001 and 2002 were particularly hard on
equities, but better for property and bonds.

Source of information: Financial Express – (UK Shares=Legal & General UK Tracker, Property =NU Property Unit Trust, Bonds=Legal &
General All Gilt, Cash=Legal & General Cash fund)
The different asset classes behave differently at different times, and it is impossible to predict consistently
which area is next year’s best performer.Diversification means spreading your investment across
different sectors and asset classes, to reduce market risk.
The key to successful investment is to create a balanced portfolio across a range of asset classes. This
protects you from short term losses in one part of your portfolio, through exposure to stronger
performance elsewhere. Through this diversification, risk is reduced.

Past performance is not a guide to future performance

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Emergency and short term funds

If you need funds within the next few years, or may do so in the event of an emergency, then it is not
appropriate to invest this money in assets such as property or shares. We therefore recommend that such
funds are set aside in cash before committing funds to assets, such as property or shares, which are
more appropriate for longer term investment.

Why we recommend passive fund management where possible

In the past, we have used actively managed funds to try to achieve the best returns for our clients. This
means that a fund manager will invest, in a particular sector, aiming to beat the other managers in that
sector. He or she will try to identify those stocks which will perform better than others, or try to find the
needle in the haystack.

Passively invested funds simply seek to provide the market return. They buy the haystack.

Looking at past performance tables comparing different funds, it may appear that many active fund
managers have the edge over passive funds, and looking backwards, it is undeniable that some
managers have demonstrated skill and judgement to generate well above average returns for their
clients,in the past.
However, active funds have a number of fundamental drawbacks for investors, looking to the future.

• Statistically, two thirds of active managers under perform the markets that they are investing in each
year. Furthermore, it is not possible to predict which one third of active managers are beating the
market as the out-performers are a shifting population (source: Smarter Investing – author Tim Hale).

• Originally, the reason to employ a fund manager to look after your investments on an active basis
was that there were so many different shares available it was impossible to select the winners of the
future. Now, we have reached a situation where there are more active managers and funds than
there are actual shares so we are back at stage one again.

• Active managers also have a tendency to trade the stocks in their portfolios in their efforts to beat the
markets. Each time a stock is purchased there is a cost and each time a stock is sold there is
another cost. This turnover can have a significant effect on the total expenses of the fund over time.

• For every manager selling a share, another one is buying it. One will have made the correct decision
for the future, the other will not, but both will have incurred the trading costs.

• Within the fund management industry there is a continual ‘merry go round’ of fund managers,
meaning that they rarely stay with the same company for more than two or three years. This has had
a dramatic effect on the way we are able to manage money. The charges involved in moving a
client's portfolio from one fund to another involves considerable costs against leaving the funds to be
at the mercy of a manager we may be unfamiliar with.
Overall these factors have substantially increased the risk of investing in active managers and we have
found that this higher level of risk is not reflected in any significant greater returns for our clients. In short,
there is no reliable way of identifying which fund managers are going to get it right in the future, and even
if we did find such a manager, the chances are he or she would have moved on before we were able to
benefit.

By using passive investment funds we therefore have the following advantages:

• As passive funds operate a buy and hold strategy, trading costs are reduced substantially.

• Fund management charges are reduced, as there is no star fund manager to pay

• Reduced transaction costs, as no need to review funds when managers move

A balance between Index tracking and the 'Dimensional' approach

The vast majority of passive management is centred round the tracking of various indices. This may
present a number of investment problems as follows:

• The weighting of funds towards the larger constituents in the index. For example, the top 10
companies in the UK market constitute around 50% of the FTSE 100 index and 40% of the FTSE all
share index.

• Index-tracking funds must buy and sell companies as they enter and leave the index, usually all at
the same time, and quite possibly the wrong time.

• In markets, including smaller companies, the necessity to purchase potentially illiquid stocks

Unchecked, the potential problems above could lead to reduced returns from your portfolio. We therefore
supplement standard all-share index tracking funds with passive funds from Dimensional Fund Advisers.

Dimensional Fund Advisers adopts a scientific and pragmatic approach managing funds in a disciplined
and structured way to enable investors to enjoy the benefits of passive investment but with sufficient
pragmatism to avoid large company bias and rigid trading parameters. Dimensional funds are available
only via fee-based financial advisers. They do not pay introductory commissions, standing or falling only
on their ability to manage their funds.

Academic research by Professors Fama and French studied the returns achieved by 'growth' and 'value'
types of shares, and the shares of larger and smaller companies. These returns were studied over many
time periods and many decades of data were used. The research showed that, whilst there will be periods
of time when growth and large companies outperform, these periods are in the minority. Over most time
periods, and importantly when shares are held for the longer term, smaller and value shares reward
investors with higher returns than large and growth shares.

Whilst the Dimensional funds invest in all areas of the market, there is a bias towards smaller and value
shares compared with the market as a whole.

There will therefore be periods of time when the funds under-perform the market as a whole, but over the
longer term the lower charges and the slight bias to smaller and value style companies should provide a
greater likelihood of higher long term returns.

Fixed Interest Investment

Within fixed interest investment, we have identified that based on the evidence of past returns, the
additional risk involved in investing in corporate bonds rather than gilts is not rewarded by sufficient
additional returns, over the longer term. Our fixed interest investment is therefore restricted to short dated
bonds and index-linked gilts. This evidence is supported by Dimensional's own research.
Property
The reason for including property in the portfolio is to reduce volatility, by providing a part of the portfolio
which may perform well when other areas such as equities and fixed interest might be underperforming.

Property is an area where passive investment is less possible, as the desirable aspects of commercial
property investment are only available from investment directly in bricks and mortar.

The desirable factors required from a property fund are as follows:

• Low volatility

• Large fund size – for increased diversification

• Low charges

• Low cash holdings

• Holdings in 'bricks & mortar' preferred, due to lower volatility

• Historic relative performance

Where our portfolios invest in property, we use two funds, for diversification purposes. Both funds are
selected with the above objectives.

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Asset Allocation - Our Model Portfolios

We have designed six portfolios, each with a different balance between risk and potential reward. These
are as follows:
The funds used for each portfolio are the same, but the proportions used differ according to the exposure
required to each asset class.

A key part of our advice process is the completion of a detailed risk profiling questionnaire which we will
use to establish which of the above portfolios is most suitable for you as an investor.

The Finametrica Risk Profiling system is a sophisticated tool helping us to determine clearly where your
boundaries lie in terms of what level of volatility you are prepared to accept.

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A Summary Risk Profile is a simple mechanism to increase the visibility of risks; it is a graphical
representation of information normally found on an existing Risk Register. In some industry sectors it
is referred to as a risk map. The project manager or risk manager needs to update the Risk Register
on a regular basis and then regenerate the graph, showing risks in terms of probability and impact
with the effects of mitigating action taken into account. The Summary Risk Profile illustrated below
shows all key risks as one picture, so that managers can gain an overall impression of the total
exposure to risk. It is essential for the graph to reflect current information as documented in the Risk
Register. The profile must be used with extreme care and should not mislead the reader. If an
activity has over 200 risks it will be impractical to illustrate all of the risks. It will be more appropriate
to illustrate the top 20 risks, for example, making it clear what is and is not illustrated.

A key feature of this picture is the risk tolerance line, indicated here as a bold line. It shows the
overall level of risk that the organisation is prepared to tolerate in a given situation. If exposure to
risk is above this line, managers can see that they must take prompt action such as upward referral of
relevant risks. Setting the risk tolerance line is a task for experienced risk managers; it reflects the
organisation’s attitudes to risk in general and to a specific set of risks within a particular project. The
parameters of the risk tolerance line should be agreed at the outset of an activity and regularly
reviewed.

The use of RAGB (Red, Amber, Green, Blue) status can be useful for incorporating the status
reporting from Risk Registers into risk profiles, and can provide a quick and effective means of
monitoring

http://www.rwpfg.co.uk/investment-philosophy.html
The Importance of Rebalancing
A key part of our Professional Financial Planning service is rebalancing the portfolio at a regular review.

This introduces a discipline to the investment process which saves the investor from two potential pitfalls,
which tend to occur when rebalancing doesn’t take place, namely:

1. The risk profile of the portfolio drifts over time

2. Most people tend to buy when markets are rising, and sell when they are falling

To demonstrate these points, let us consider examples of the effects of differing returns over two different
time periods.

Risk Profile Drift – 2003 to 2007

Firstly assume a portfolio is invested at the beginning of 2003, with a 50:50 split between equities and
fixed interest investments. Assuming market returns, the balance would have altered as below by 2007:

The balance of the portfolio after a few years has a significantly higher risk profile. During 2008, equities
were severely affected by the “credit crunch”, meaning that the over-exposure of the portfolio to equities
would have meant the additional risk adopted was punished.

Rebalancing each year ensures that as markets rise, profits are consolidated into other assets, keeping
the risk profile of the portfolio as intended.

Buy Low, Sell High - 2002 to 2003

Where rebalancing becomes an even more important discipline is where assets have fallen in value. If our
investment had been made at the beginning of 2002, it would have drifted as follows, as equities fell by
23% during that year:

Successful investment is summed up in a simple phrase: Buy low – Sell high. Whilst this adage may be
easy to say, the majority of investors in practice actually do exactly the opposite. When stock-markets are
rising, or have risen, people are drawn to invest, ignoring the risks which seem worthwhile when things
are going up.

However, when markets fall, which they inevitably will from time to time, investors tend to become fearful
and either sell or stay away from equities, at exactly the time when they should be buying.

By rebalancing at the end of 2002, we are 'buying low', and allowing more of the fund to benefit from the
bounce in equities when they recover, thereby participating in the rise in the market. Equities rose 20% in
2003.

Rebalancing on a regular basis, preferably annually, therefore:

1. Maintains the risk profile of the portfolio

2. Introduces a 'buy-low, sell-high' discipline to the investment

The Professional Financial Planning Service is an ongoing commitment on our behalf to revisit your
investments on a regular basis and, if necessary, rebalance your portfolio in accordance with your risk
profile.

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Professional Financial Planning Service
Rutherford Wilkinson offers you the Professional Planning Service, which puts into practice the
investment philosophy set out in this document.

This includes the following:

• A Minimum Of One Annual Face To Face Meeting (If Appropriate)

• The RWLtd 12 Point Financial Health Check For Protection & Investment

• Re-Balancing of Asset Allocation at agreed intervals

• Monitoring And Evaluation Of Original Investment Funds

• Biannual Written Portfolio Valuations

• Annual Written Tax Summary Where relevant

• Online Access To 'Wrap Platform' Where Appropriate

• Review Of Other Investment Opportunities Upon Request

• Remove the Hassle Service

• Review Your Documents To Minimise Paperwork Wherever Possible.

• Priority Response & Availability

• Additional Face To Face Meetings Available On Request

• Unlimited Access To Your Adviser During Normal Business Hours Via Telephone Or Email - We aim
to return all phone calls and emails within one working day.

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risk profile
Your risk profile indicates the level of volatility you would be comfortable with. It helps the Financial Planner identify
the appropriate mix of various asset classes in your investment portfolio.
Although diversifying into all asset classes is recommended for most clients, your risk profile will help assess the
proportion of each asset class in the total investment. This is due to the fact that all asset classes have varying
degrees of volatility and return associated with them.
Your risk profile is assessed through a series of questions and situations presented to you. It is important that you
think and respond to these questions correctly.
Along with the investment time frame and your objectives, the risk profile becomes one of the important factors that
will greatly influence the returns you can expect from your investment.
Time and circumstances can also change your risk profile.

hese pages provide generic information about various aspects of financial services and provide some
ideas and indicators about possible areas of need. We hope they are helpful but they do not, on their
own, add up to proper investment advice and we cannot take responsibility for anything you do in
reliance on them without further discussion with us. Do not make a decision based upon the information
contained within these pages alone. They are not detailed or comprehensive enough to enable you to
make a correctly informed decision

See Also
• Risk v reward
• Unit Trusts
• OEIC’s
• Investment Trusts
• Government Gilts
• Corporate Bonds

Risk V Reward
Different people have different attitudes to risk. You need to be clear about the degree of risk you are
willing to accept before undertaking any kind of investment. The following is an example of a Risk/Reward
profile
Risk Profile
• These risk categories are for guidance only. Your personal advisor may have chosen different ways
of categorising risk
• Different people have different attitudes to risk
• You need to be clear about the degree of risk you are willing to accept
• This is a difficult area as everyone views risk differently
• There is a balance between risk and potential return – generally speaking higher risk investments
usually mean that higher returns may be possible BUT also the risk of losing money is also
increased.
• Lower risk generally means lower returns but a lower risk of losing money – nothing is ever set in
stone though!
• Risk is also related to how long investment is undertaken. With stocks and shares you should be
taking a longer term view – most commentators advise that a 5 year investment time frame is wise
• Risk can also be in terms of how you invest. Investors wishing to minimising risk would consider a
broader investment spread as opposed to investment in a specialist area

Remember past performance is not a guide to future returns. The value of investments and the income
from them can go down as well as up. The level of tax benefits and liabilities will depend on individual
circumstances and may change in the future. Exchange rate fluctuations may cause the value of
underlying overseas investments to go down as well as up. Some Funds investing in specialist sectors or
areas carry greater risks due to the potential volatility of market sectors into which the funds invest.

You should not invest without consulting a Key Features Document and supporting literature. If you are in
any doubt about the suitability of this Investment you should also contact us before investing.

Unit Trusts
Unit trusts are a popular investment vehicle, and in their more recent format they are more usually
referred to as 'open ended collective investments' which put the cash of many investors into one fund a
'pooled fund'. This system allows investors to invest "collectively" which has the benefits of spreading and
reducing risk and keeping costs under control. Unit trusts allow you to invest in the stock market but
enable you to spread your risk and benefit from expert investment management.
 There are many unit trusts to choose from across a wide range of investment sectors. The managers of
the trusts can buy and sell within the trust without having to pay any tax, however tax liabilities can arise
on dividends and unit sales by the holder.

The LS Wealth Management Service

Investment Portfolios
With the whole of market at your disposal, there is extensive scope for investment selection to meet any changes in
your investment goals.
The portfolio that you will be allocated will reflect your attitude to risk. Thus if you are risk averse you will have
more of the ‘safer’ type assets. If you are comfortable with risk, you will have more of the ‘riskier’ asset classes.
Example Portfolios
Lower Risk Higher Risk
Risk Profile 3 Risk Profile 8

Source:
Selestia Asset Allocation. Asset allocation performed 08/09/2006. Collective Investment Account, Growth/Bespoke Investor
Using strict criteria, such as risk and volatility ratings, tenure of manager and past performance, we have created 10
investment portfolios. As our advice is based on your specific needs and attitude to risk, we can therefore
recommend to you the most suitable funds or portfolio based on your investment objectives.

Many times on this blog, I have mentioned that my investing style is very much objective
driven. I tend to follow the systemic approach. Whenever I think about my investments, I
tend to look at from the full portfolio investments perspective. In addition, I also believe in
continuous evolution, and hence I make changes as I learn more about any aspects of
investing. Readers of this blog will find that I do not talk about mutual funds. That’s because
I am not a fan a mutual funds.
In this post, I am providing an overview of my investment buckets. These buckets address
my long term investment risk profile for 10+ years and beyond. This description is not
related to asset allocation or diversification. The graphic below provides an schematic for
overall perspective.

TIP Guy's Investment Buckets

Portfolio 1: Index-Based Fund (30%)

The objective of this first portfolio is to replicate the general market performance. I believe
that in 10 years and beyond, the BSE SENSEX, NIFTY, and other indexes, will be higher
than today. At the time of this writing I am not I am invested in any of the index based low
cost funds. I am still evaluation and investigating the good investment vehicle. While I am
waiting to make a decision, I am allocating regular cash to this portion of my target and the
fund is getting accumulated in savings and CDs. My main issue here is a lack of good low
cost index fund.
Portfolio 2: Opportunity Portfolio (20%)
This is my second portfolio which solely focuses on capital appreciation. These are mostly
value-based investments. Here I invest in companies which I believe are undergoing short-
term difficulties but are worthy of long term investment. Limiting myself to 20% helps me
reduce the risk of over exposure in risky stocks.
Portfolio 3: Dividend-Focused Portfolio (50%)
The third portfolio is allocated to income producing dividend-based investments. The
objective of this portfolio is to generate increasing passive cash flow and long-term capital
appreciation. The total target allocation is 50% of my portfolio investments. All of the
positions shown on my holdings page are all related to this part of my portfolio.
Majority of the discussion on this blog will be on my dividend-focused portfolio (i.e. Portfolio
3). Depending upon the relevance of a given topic or investment vehicle, occasionally, I
may also discuss about my other two portfolio investments.
How do you define and maintain your investments buckets?
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