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When pulling out of port, a ship has a course planned out to its destination. Along the route, they will undoubtedly navigate through bad weather, tough conditions, ocean currents, and high winds. If the captain does not actively monitor their course, the ship could be thrown off by hundreds of miles. It is no different when evaluating risk inside a portfolio. Proactive and consistent supervision is necessary to ensure that the portfolio stays on track and delivers the performance needed to support the client’s long-term goals. 

When we build financial plans, analyze portfolios, or construct investment portfolios, we answer core questions that clients repeatedly ask, such as ‘Do I have enough?’, ‘How can I make this last?’, ‘What type of lifestyle can I safely provide?’. With technological innovations, we are now able to take a deeper look inside the drivers of those concerns from a fresh perspective. CF Financial has unveiled a quantitative, intuitive tool to analyze and appreciate what risk truly means to each individual client. By upgrading outdated questionnaires, clients can now quantify and articulate what risk means to them on an individual basis. This leads to a more complete understanding of client goals, needs, concerns, and decision-making factors, which leads to a better relationship with the client.

The antiquated process in which a financial advisory firm measures risk typically includes answering 10 to 12 multiple choice questions and scores the answers to determine if the client is ‘aggressive’, ‘moderate’ or ‘conservative’. Grouping clients in broad risk classes provides no value to the client or aids in the overall management of their net worth. It has been our belief for some time, there must be a better way to engage our clients in discussing their risks.  In deploying the Riskalyze tool, we can break down what risk means to a portfolio measuring real dollars. The financial world does a great job in communicating in percentages, but clients are saving dollars to grow dollars so they can spend dollars later. Now, we have a way to measure in terms the client understands and that has real-life application.

This process measures risk on an individual security basis and measures the entire portfolio based upon the holdings that constitute the account. It forecasts the risk/return on 6-month increments at a 95% accuracy rate. This means that how Riskalyze analyzes the portfolio, they can state with 95% accuracy that the portfolio will be within a return range. By having this level of accuracy, CF Financial can begin to have different discussions surrounding investments as clients gain further clarity on what their portfolio is designed to accomplish. We can start asking questions such as:

  • How much risk do you want?
  • How much risk do you have?
  • How much risk should you have?
  • How much risk do you need?

Previously, these discussions were vague and subjective. By leveraging the Riskalyze tool, clients will have a much deeper understanding of what they own, why they own it, and what type of return each security is designed to have both in the short and long term. By contrasting a measurable risk number to their current investments and goals, clients can gain a renewed perspective on their assets.

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