Frequently asked questions – risk profiling
How do I create a new Risk Profile
To launch the risk profiling tool, select the Risk Profile icon from the Defaqto Engage homepage.
Is the Risk Profiling functionality compatible with an iPad?
The risk profiling functionality within Defaqto Engage is compatible with Safari on an iPad. An internet connection is required.
How do I define the client’s Attitude to Risk?
The assessment of the client’s natural attitude to risk is defined by the psychometric questionnaire. We have developed an ATR methodology with Moody’s that can be used in assessing investment attitude to risk. The feedback from the questionnaire should form the basis of a discussion with the client, allowing the adviser and client to define an Agreed Risk Level.
How have the Defaqto risk profiles been defined?
We have worked with Moody’s to create 10 risk profiles that can be used to summarise a clients’ mandates in most circumstances. Each profile is defined by risk (i.e. volatility) over a 10 year period.
How can I complete the questionnaire with my client?
There are three ways in which you can complete the questionnaire.
To complete the questionnaire within the system, select the Launch button. You are also able to email the questionnaire to the client to complete by selecting the Email button. Alternatively, you can download and print the questionnaire so the client can complete a paper version by selecting the Download button.
How long will the questionnaire take to complete?
Completion of the questionnaire itself should take around 5 minutes. However, an adviser should explain how the questionnaire fits into the financial planning process as well as discussing the results with the client.
Should I recommend a fund solution based on the client’s natural attitude to risk?
No. The questionnaire and natural attitude to risk are one of several requirements for fund selection. You should also consider the client’s objectives and the required return, their capacity for loss and any other circumstances that may impact the investment. The natural risk level that is defined from the questionnaire should form the starting point of discussions with the client when determining the agreed risk level.
How do I capture the client’s mandate?
Once you have completed the questionnaire, you can enter in the clients target amount, term and any recurring payments. Based on the natural attitude to risk, you can then project the likely outcomes at the end of the period.
This information should then be used to discuss and illustrate the clients’ required risk and to understand their capacity for loss. This can be done through an interactive discussion with the adviser, seeing how changes may impact the outcome. Once a risk level has been agreed, this outcome can be documented and additional commentary can be added.
How do I find a fund solution that is based on my client’s agreed risk level?
Once a risk profile has been completed, and the outcome has been documented, this will be saved to the Risk Profile tab on the Defaqto Engage homepage.
To open the risk profile, and find a fund solution for the client you must select the saved risk profile from the homepage. After selecting if you would like to use a tax wrapper, and confirming the client details, you will be taken to the fund solution screen, giving you three fund solution options.
What is Risk Targeted Multi Asset?
Defaqto have mapped a number of risk-bound multi-asset portfolios to the Defaqto risk profiles. This allows you to choose a multi asset collective or unitised DFM fund from a range that has been mapped to your client’s risk level.
I cannot find the multi-asset fund I am looking for.
Defaqto work with fund managers on an ongoing basis to include additional multi asset solutions. In order for a fund to be risk mapped, we require the cooperation of the fund manager so we can ensure that the risk mapping is correct. If a fund has not been risk mapped, it is still available for recommendation, but you need to access this through the Adviser Manual Selection fund solution. Defaqto’s fund database covers the whole of the market.
How are multi asset funds risk mapped?
Funds are analysed in terms of their historic volatility, future volatility as well as qualitative research. Once this analysis has been done, it will be discussed by our risk mapping committee. Once a decision has been made, this output will apply for 12 months and will be reviewed quarterly.
What is Target Asset Allocation?
Target asset allocation refers to the method of constructing a portfolio of single asset funds to meet an optimised target asset allocation, as determined by Defaqto. For each risk level there is an optimised range of assets based on volatility and expected return calculations. For each asset class within each risk profile, there are tolerances that you should aim to fall within.
What happens if my Target Asset Allocation is outside of the advised tolerances?
If any of the asset classes are outside of the advised tolerances for the client’s risk level, a warning message will appear.
You can agree to this and recommend the portfolio, despite being outside of one or more of the tolerances. It is advised that you justify the reasons for this in the justification text. Alternatively, you can return to the portfolio and ensure that the asset classes are within the recommended tolerances for the risk level.
How do I add Platform research?
Platform research can be incorporated to any of the three fund solutions. To do so, once you have progressed to the fund solution tab, you must switch platforms on using the Platform box. To do this, open the drop down arrow and select Use Platform. This will activate platform research. To move on to Platform research, click the Platform box. Platform research can be completed either before or after Fund research.
Where can I find additional information on Risk Profiling, Risk Targeted Multi Asset Funds and Target Asset Allocation?
The Risk Mapping toolkit contains further information. To access this, please sign into Defaqto Engage. The toolkit can be found on the Risk Profile tab of the homepage.