Total Asset, Life Cycle wealth management manages the relationship between financial needs and financial assets over time. This is in fact the most important relationship as far as risk is concerned. Relating portfolio structure to financial needs actually simplifies the risk assessment process; because the size and timing of financial needs are personal to the investor, both the need for low risk assets and the preference for low risk assets is directly and primarily related to the size and timing of an investor's financial needs, because the nature of asset class risk and return changes over time, there is also a direct relationship between asset allocation and the size and timing of the financial demands on a portfolio's assets.
Because managing total assets and financial needs directly relates portfolio structure to financial needs, it directly also relates risk assessment to the amount of financial security an individual investor wants and needs from their portfolio. If a portfolio is constructed to meet financial needs, then the derived asset allocation, as a basic minimum, should be sufficient to protect income and capital needs against these significant risks and this financial security can be easily illustrated and communicated to the client. If the investor wants more security and greater protection against short term stock market and economic risks, then they can easily choose and make a more informed decision. Because there is a direct relationship between financial needs and the yield, liquidity and volatility risks of the equity portfolio, the investor will also have also have a reference equity portfolio suitable to their needs; providing the asset manager is able to relate portfolio structure to financial needs over time. If they are more aggressive or more conservative then they can use this portfolio as a reference point for adjusting the equity portfolio selected . Risk profiling is one of the more complex areas of the wealth management process. It is also one of the areas of least expertise and greatest practical weakness. Few if any financial advisors have enough expertise in risk profiling and risk assessment and fewer still fully understand the actual risk assessment procedures being used in the industry.
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