Risk profiling  The risk assessment should provide the wealth manager with a risk profile. A risk profile is a record of the individual's answers to the risk assessment questionnaire.
It is important because it is this profile which should be used to both select the recommended portfolio, asset allocation and security selection and adjust this asset allocation and security selection to suit the investor's own preferences. For a given set of financial needs over time, a given set of market and economic conditions and, a given investment style, there is a recommended portfolio for each investor which is personal to each investor. It is this structure that the risk profile will adjust, making it not only personal to the investor's financial needs, but risk and performance preferences.
A risk profile should do the following. Record the investor's aversion to significant stock market and economic risk and therefore determine the preferred low risk allocation relative to what the advisor would recommend. This risk aversion relates the amount allocated to low risk investments to the size and timing of an individual's financial needs and is not normally assessed. The profile would record a number say between 1 and 10. Record the investor's aversion to the initial risk of investment and therefore determine how much of the recommended stock market allocation is made from a cash position. This records the investor's aversion to the major initial risk of stock market investment as well as investment timing risks and, again is rarely assessed. For example the risk profile would record a yes or a no or, a 1 or a 2  Record the investor's aversion to the risks of a manager's investment style. For those managers that are able to adjust portfolio structure in accordance with an investor's natural performance preferences this will mean either reducing or increasing international allocation and/or adjusting the strategy within markets towards that of the index. A risk profile may record say a number between 1 and 5. Record the investor's attitude towards taking a higher or lower level of risk than that taken by the manager within the stock market component of the portfolio, either increasing the aggressiveness of the strategy or reducing it and reducing the allocation to markets in general. Again this may record a number between 1 and 10. The profile would combine all the results, say 5, 1, 3 and 6 and these figures would be inputted into an investment planning and asset management system to select the portfolio, its allocation and the way in which it will be managed.
For many advisors, risk assessment and risk profiling starts and stops at the "know your client" form and the basic retail risk assessment questionnaire. Unfortunately, this limited retail risk assessment provides a very limited risk profile. Additionally, for firms that deliver a fixed investment style and are unable to adjust their strategy and asset allocations for risk aversions and preferences would use the risk profile to determine whether or not a client is compatible for their services. The results of the risk assessment should be reported in the client's initial investment planning and asset management report or at least communicated formally. How effective a risk profile is depends very much on an organisation's investment planning and investment disciplines as well as the sophistication of their wealth and asset management systems. Why? For each individual investors income and capital needs over time, there is a relationship between the allocation to larger companies, to dividend paying companies, to smaller companies, to defensive companies, to under valued companies, to global markets based on the way the advisor structures their portfolios. The individual investor may be more conservative than the asset manager or more aggressive than the asset manager and their risk preferences will adjust the strategy of the portfolio. | 
