Laying quality foundations

Private Client Risk Profiling Questionnaire

Many financial decisions are made in situations of uncertainty, and so risk is involved. Different people are comfortable with different levels of risk.

Unlike, say, height or weight, there is no unit of measurement for risk tolerance. A person's risk tolerance can only be measured relative to others on a constructed scale, in much the same way as IQ is measured.

By using the FinaMetrica Risk Profiling system, you obtain an accurate assessment of your risk tolerance in terms that are meaningful to you and your advisers. Your Risk Profile report will guide you and your advisers in your financial decision making. In particular, the report provides the basis for your instructions to your advisers on the level of risk you would prefer.

In the questionnaire, you are asked about your attitudes, values and experiences. Your answers are scored against the system's database and used to produce a detailed report. The questionnaire takes about 15 minutes to complete.

Developed and maintained in conjunction with the School of Psychology at the University of New South Wales, the system exceeds international standards for tests of this kind.

Why are 25 questions needed? A person's answer to a specific question may be influenced by a particular experience they have had, or their mood at the time. Or they may have misinterpreted the question. Or they may simply have made a mistake.

Statistical studies are used to determine the number of questions needed to provide a scientifically acceptable level of accuracy in an assessment. The accuracy of a questionnaire is a function, in part, of the square of the number of questions. Because of the nature of risk tolerance more than just a few questions are needed. Statistical studies of this questionnaire show that its accuracy exceeds internationally accepted standards.

What if the situation described in a question has never happened to me, or will never happen to me? There are a number of questions that ask you to assume or imagine you are in a certain situation. These questions are designed to gain a picture of what you would do in such circumstances, regardless of whether you have ever been in them or are ever likely to be in them. Please answer as best you can on the available information.

What if a question asks about a situation where, in real life, I would have (or would seek) more information than is given in the question? Some questions require you to make a decision based on limited information. While, in real life, you may wish to obtain more information before making your final decision, these questions are designed to gain an idea of what you would do given the limited information. Please answer as best you can on the available information.

What if none of the choices in a multiple-choice question is my preferred answer? Some questions give you a limited choice of responses and may not include what would be your preferred answer. These are designed to obtain a picture of what you would do given the choices available. Please answer as best you can on the available choices.

You answer a question by selecting one of the options. You select an option by clicking on the button in front of it. Please answer all 25 questions. If none of the options is exactly right for you, choose the option that is closest.

Please provide us with contact details so we can get in touch with you to discuss the results of your Risk Profiling.

Email *
Surname *
First name *
Title
Adddress
Post code
Phone number
Cantab Adviser

*Please ensure you have entered your name and valid email address above.

1)

Compared to others, how do you rate your willingness to take financial risks?

2)

How easily do you adapt when things go wrong financially?

3)

When you think of the word "risk" in a financial context, which of the following words comes to mind first?

4)

Have you ever invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value?

5)

If you had to choose between more job security with a small pay increase and less job security with a big pay increase, which would you pick?

6)

When faced with a major financial decision, are you more concerned about the possible losses or the possible gains?

7)

How do you usually feel about your major financial decisions after you make them?

8)

Imagine you were in a job where you could choose whether to be paid salary, commission or a mix of both. Which would you pick?

9)

What degree of risk have you taken with your financial decisions in the past?

10)

What degree of risk are you currently prepared to take with your financial decisions?

11)

You have an opportunity to make an investment that appears to be almost certain to produce a sizeable return. However, you have no funds to put towards this investment. One option is to borrow money for this purpose. How likely is it that you would do this?

12)

How much confidence do you have in your ability to make good financial decisions?

13)

Suppose that 5 years ago you bought shares in a highly regarded company. That same year the company experienced a severe decline in sales due to poor management. The price of the shares dropped drastically and you sold at a substantial loss.

The company has been restructured under new management and most experts now expect it to produce better than average returns. Given your bad past experience with this company, would you buy shares now?

14)

Investments can go up or down in value and experts often say you should be prepared to weather a downturn. By how much could the total value of all your investments go down before you would begin to feel uncomfortable?

15)

Assume that a long-lost relative dies and leaves you a house which is in poor condition but is located in a suburb that's becoming popular.

As is, the house would probably sell for £150,000, but if you were to spend about £50,000 on renovations, the selling price would be around £300,000.

However, there is some talk of constructing a major motorway next to the house, and this would lower its value considerably.

Which of the following options would you take?

16)

Most investment portfolios have a mix of investments - some of the investments may have high expected returns but with high risk, some may have medium expected returns and medium risk, and some may be low-risk/low-return. (For example, shares and property would be high-risk/high-return whereas cash and bank deposits would be low-risk/low-return.)

Which mix of investments do you find most appealing? Would you prefer all low-risk/low-return, all high-risk/high-return, or somewhere in between?

  Mix of Investments in Portfolio
  High
Risk/Return
Medium
Risk/Return
Low
Risk/Return
0% 0% 100%
0% 30% 70%
10% 40% 50%
30% 40% 30%
50% 40% 10%
70% 30% 0%
100% 0% 0%
17)

You are considering placing one-quarter of your investment funds into a single investment. This investment is expected to earn about twice the bank deposit rate. However, unlike a bank deposit, this investment is not protected against loss of the money invested.

How low would the chance of a loss have to be for you to make the investment?

18)

With some types of investment, such as cash and bank deposits, the value of the investment is fixed. However inflation will cause the purchasing power of this value to decrease.

With other types of investment, such as shares and property, the value is not fixed. It will vary. In the short term it may even fall below the purchase price. However, over the long term, the value of the shares and property should certainly increase by more than the rate of inflation.

With this in mind, which is more important to you - that the value of your investments does not fall or that it retains its purchasing power?

19)

In recent years, how have your personal investments changed?

20)

When making an investment, return and risk usually go hand-in-hand. Investments which produce above-average returns are usually of above-average risk.

With this in mind, how much of the funds you have available to invest would you be willing to place in investments where both returns and risks are expected to be above average?

21)

Think of the average rate of return you would expect to earn on an investment portfolio over the next ten years. How does this compare with what you think you would earn if you invested the money in bank deposits?

22)

People often arrange their financial affairs to qualify for a government benefit or obtain a tax advantage. However a change in legislation can leave them worse off than if they'd done nothing.

With this in mind, would you take a risk in arranging your affairs to qualify for a government benefit or obtain a tax advantage?

23)

Imagine that you are borrowing a large sum of money at some time in the future. It's not clear which way interest rates are going to move - they might go up, they might go down, no one seems to know. Given the two types of loans below, which are you likely to take?

• A variable interest rate that will rise and fall as the market rate changes.
• A fixed interest rate which is 1% more than the variable rate but which won't change as the market rate changes.

24)

Insurance policies cover losses resulting from fire, theft and auto accidents. "Deductibles" or "Excess" are the amounts of a loss that the insurance company will not reimburse. The higher the deductibles or excess one chooses, the lower is the cost of the insurance. People select different amounts for their deductibles or excess. What sort of deductibles or excess do you typically take?

25)

This questionnaire is scored on a scale of 0 to 100. When the scores are graphed they follow the familiar bell-curve of the Normal distribution shown below. The average score is 50. Two-thirds of all scores are within 10 points of the average. Only 1 in 1000 is less than 20 or more than 80.



What do you think your score will be?

1)

I am

2)

Date of Birth

3)

The highest education level I attained, or the closest equivalent, is

4)

Having in mind income from all sources - work, investment, family and government - into which income bracket does your personal before-tax income fall?

5a)

Are you married (or in a de facto relationship)?

5b)

If "Yes", into which income bracket does your combined before-tax income fall?

6)

How many people in your family, beside yourself, do you fully or partially support financially?

7)

Think of your net worth as being what you own, including your family home and other personal-use assets, minus what you owe. Into which bracket does the value of your net worth fall? (If you are married or have a de facto partner, include only your share of jointly owned assets less your share of what you owe jointly.)

8)

How long have you been investing in stocks and shares/ collective funds?

You may wish to review your answers before they are recorded in the system. Once recorded they cannot be changed. This is done to ensure the integrity of the data. If, later, you wish to change one or more answers, you can only do so by re-doing the whole questionnaire.

You can review your answers by scrolling through the questionnaire. Now is the best time to correct any mistakes or omissions.