1. Risk Profile It is too RISKY to get your Client's Risk Profile WRONG!!

2. Why is Risk Profile important? Cornerstone or foundation of your client’s investment recommendations

3. What is Risk Profiling? “CONSERVATIVE” 70% Defensive 30% Growth “BALANCED” 50% Defensive 50% Growth 30% Defensive 70% Growth “GROWTH”

4. Where to start?

5. Russell Investments Cycle of Emotional Investment Irrational client investment psychology

6. Investor myths - motivations GreedFear Desire to be RICH! Avoid pain of becoming POOR!

7. Currently…what are your clients thinking? Fear! Worst case -Survival Capital protection Income certainty Longevity risk

8. Greed!

9. Your Money & Your Brain by Jason Zweig & other gems Auto pilot to search for patterns (simplify) More likely to be optimistic (if win once early, overestimate) Recency effect (emphasis on recent happenings) Group think (Media frenzy “the sky is falling!”) Hindsight (delusion - I could have done better than you) Short cuts (smarter, not harder, time poor, laziness) Short termism (Gen Y) Exaggerate loss or pain (ego)

10. Rule #1 Know your client Listen for the emotional cues of your client. Investment Experience? Exposure? Understanding of risk? Ego? Other circumstances?

11. Rule #2 Educate your client Volatility is the norm, not new!

12. Why is Risk Profile important? Reality is you cannot invest and avoid risk. Do you … MAXIMISE Return? MINIMISE Risk?

13. Be Conservative. Rule #3 “Take no more risk than is deemed necessary to meet your objective.”

14. Are Risk Profiling Tools the Answer? Do they work? What is your number? INSIGHTINSIGHT

15. Rule #4 Use Risk Profile as a tool, as a guide, not a bible!

16. Rule #5 Document client discussion and decision Client to sign agreement to Risk Profile

17. Rule #6 Set and Forget?

18. Rule #7 Review client experience regularly to educate and revise Ongoing service – review to monitor compliance and rebalance investments to match to Risk Profile regularly Reinforce at review

19. Rule #8 Be paranoid but not paralysed

20. Rule #9 Get it right the first time! Warning! Mirror effect Personal bias Individuals (even within relationship)

21. Rule #10 The goal of setting the client’s Risk Profile is to agree on level of risk ACCEPTABLE for the client... relative to their OWN risk tolerance... subject to their TIME horizon and goals... limited by their CAPACITY to Risk & Lose!

22. This paper represents the opinions of the author(s) and not those necessarily of the Institute of the Chartered Accountants in Australia (the Institute) or its members. The contents are for general information only. They are not intended as for professional advice – for that you should consult a Chartered Accountant or other suitably qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers.