When producing an SOA (Statement Of Advice), risk profiling is a standard requirement but how much insight is your current system providing?
Author Gillan Williams
Date 5th May 2017
Rather than focusing on compliance, which any diligent firm is able to do – consider the effectiveness of improved appropriateness allocation for investors, relative to the profiles of thousands of other investors.
The advantages are numerous.
Reveal more about your client
The Oxford Risk Rating Online (ORRO) platform deals with 4 core issues – risk tolerance, suitability, knowledge and experience and risk capacity. Our research developed these 4 elements to provide a stable and reliable basis for an algorithmic calculation of your investors’ risk tolerance, the main output.
These elements of a risk profile are discussed and explored through psychometric questionnaires. During the process, you will learn a great deal about your client, their goals, risk capacity, time horizon and appetite for risk. Rather than assuming your client knows and understands their risk tolerance, the process will determine it relative to the profiles of thousands of other investors, placing them on a relative scale, thus providing a more reliable result.
Retain clear records of your client’s risk profile
The ORRO platform retains a record of each assessment, allowing the adviser to review historic records if required. Not only is this a regulatory requirement, but also a useful tool for reviewing your client’s adjustments to risk tolerance, presenting a clearer overview of the investor.
By using Oxford Risk profiling tools, you will benefit from the association with the brands of Oxford Risk and the University of Oxford. Your firm will be demonstrating a dedication to cutting edge research from one of the top learning centres in the world and consideration for your investors and the decisions you help them make.
The FOS also advocates the use of risk profiling tools: “Risk profiling tools should be used by FSPs to identify gaps between a client’s financial resources, their appetite for risk and the timeframe to achieve their objectives.” https://www.fos.org.au/the-circular-6-home/risk-profiling-in-financial-advice-disputes/
Improved trust leads to repeat custom, reduced 'churn' and improved return on investment.