Planit:Using FinaMetrica

From Planipedia

Contents 1 Using FinaMetrica in PlanPlus Web Advisor 1.1 Advisor Profile 1.2 The Document 2 Your Investment Philosophy and Objectives

Using FinaMetrica in PlanPlus Web Advisor

The FinaMetrica Risk Profiling engine is a separate software solution that advisors may have subscribed to directly, or may have been introduced to it through PlanPlus. The advisor or his firm must make a separate subscription decision to have access to this solution.

Advisor Profile

At the bottom of the Advisor Profile (Change My Profile) in Web Advisor version 4.8 is a section that allows an advisor to record their Access Id for FinaMetrica. Once this ID is recorded the facility in Web Advisor is activated.

• If the advisor is an existing FinaMetrica subscriber, simply complete the subscription form and deliver to PlanPlus (no charges apply). PlanPlus will provide you with a separate key to access FinaMetrica from within Web Advisor at no charge. Enter your new Access Id and you are in business. (Your existing access to the FinaMterica site will continue to function).
• If you are an existing subscriber but your FinaMetrica licence is due for renewal, renew your subscription through PlanPlus, including your existing licence ID. PlanPlus will provide you with your Access Id. The advantages are:

- At a retail level, users can subscribe for between 40% and 50% of the cost of subscribing to FinaMetrica directly.

- Users will be able to retain direct access to the FinaMetrica site for the following 12 months to manage profiles you have already completed.

- PlanPlus corporate multi-user discounts may apply in addition to the already heavily discounted retail price.

• If you have never used FinaMetrica before, simply complete the subscription form and deliver to PlanPlus or your head office for processing. PlanPlus will provide you with your Access Id.

• Having successfully updated your profile, when you navigate to the Risk Profiling screen you will now see an additional button for FinaMetrica. You have the option on a client-by-client basis to use either the standard 11-question risk profiling question or the more robust 25-question version from FinaMetrica.

• Once you have “upgraded” a client to the FinaMetrica model it does not “go back”.

• The questionnaire for the FinaMetrica model is displayed. Once all of the questions are completed pressing the “Results” button will submit the response to the FinaMetrica server and return the result (score out of 100) and the content for the client IPS report.

• If there are Internet connectivity issues or issues with your user ID the screen will display an error message when activated. The service must be available for the questions to display.

• If there are multiple advisors servicing the same clients and only one has a subscription to FinaMetrica, when a non-licenced advisor access the risk profiling window they will see the recommend portfolio level but they will not see the questions, answers or score for the client.

The Document

There is login in the IPS documents that look at the “level” of the profile (PlanPlus or FinaMetrica) to determine the appropriate content. If it is a FinaMetrica profile, the standard text in IPS is replaced with content as shown on the following page(s).

Your Investment Philosophy and Objectives

Your Risk Tolerance Score

Your Risk Tolerance Score enables you to compare yourself to a representative sample of the adult population. Your score is 56. This is a higher-than-average score, higher than 67% of all scores.

When scores are graphed they form a bell-curve as shown below. To make the scores more meaningful, the 0 to 100 scale has been divided into seven Risk Groups. Your score places you in Risk Group 5.

In answer to the last question, you estimated your score would be 45. Most people under-estimate their score - but only by a few points. Yours was a much bigger under-estimate. When compared to others you are significantly more risk tolerant than you thought you were.

Your Risk Group The description of Risk Group 5 which follows, provides a summary of the typical attitudes, values, preferences and experiences of those in your group. Five of your answers differed from this description. They are shown in italics below the relevant section. These differences fine-tune the description to you personally.

Making Financial Decisions Most think of "risk" as "opportunity" and have a reasonable amount, if not a great deal, of confidence in their ability to make good financial decisions. They usually feel at least somewhat optimistic about their major financial decisions after they make them. They are prepared to take a medium degree of risk with their financial decisions and are usually, if not always, more concerned about the possible gains than the possible losses. You think of "risk" as "uncertainty". When faced with a major financial decision you are usually more concerned about the possible losses.

Financial Disappointments Typically, when things go wrong financially they adapt at least somewhat easily.

When things go wrong financially you usually adapt somewhat uneasily.

Financial Past They have taken a medium degree of risk with their past financial decisions. About half have borrowed money to make an investment. About half have also invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value, but then only rarely or somewhat rarely.

Investment Most feel that it is at least somewhat more important that the money value of their investments retains its purchasing power than that it does not fall. Over ten years, most expect an investment portfolio to earn, on average, from two to two and a half times the rate from term deposits. Typically, they would begin to feel uncomfortable if the total value of their investments went down by 20%.

Given these portfolio choices, where shares and property are high return/high risk and cash and term deposits are low return/low risk, their most common choice is Portfolio 5. If the total value of your investments went down by as little as 10% you would begin to feel uncomfortable. With these portfolio choices, you would choose Portfolio 4.

Borrowing If they were borrowing a large sum of money at a time when it was not clear which way interest rates were going to move and when the fixed interest rate was 1% more than the then variable rate, they would choose to have at least 50% of the loan at variable interest.

Government Benefits and Tax Advantages So long as there was only a small chance they could finish up worse off than if they'd done nothing, they would take a risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage.

How to Use This Report Your Risk Profile has been prepared from information provided by you and is, of course, only relevant to you. If, for example, you are one of a couple who make joint decisions, your partner should also do a risk tolerance assessment. Both Risk Profiles then need to be considered when joint decisions are being made. Similarly, where you are acting on behalf of someone else, e.g. under a power of attorney or as trustee, your own Risk Profile remains relevant but must be considered in the context of your responsibilities. The factors, other than personality, which influence risk tolerance include financial know how and experience, as well as personal, family and work situations and aspirations. If there is a significant change in any of these, risk tolerance should be re-tested. This re-testing is not only for your subsequent decision-making but also for review of decisions made before the change. People starting to actively manage their finances and/or investments for the first time often find that the new knowledge and experience lead to an increased risk tolerance. In such circumstances, risk tolerance should be re-tested within 6 to 12 months.

How we map a risk group to a portfolio

As we say above in the actual copy of the test prepared for the client, the FinaMetrica system segregates clients into seven risk groups, with a normal distribution of respondents.

The 5 default portfolios in PlanPlus are mapped to the risk groups as follows:

• Very Conservative – Group 1 & 2
• Conservative – Group 3
• Moderate – Group 4
• Aggressive – Group 5
• Very Aggressive – Group 6 & 7

Alterations to the Recommended

Advisors must be clear that this is “what we recommend” and may not be exactly what the client decides to implement, for a number of reasons:

• A client in Risk Group 1 may decide on 100% cash because they are that risk averse. As an advisor, we never recommend that a client do this but it may happen.
• A client in Risk Group 7 may want 100% of their investments in the highest return equity asset class because they do not needs the funds for years and expect “time to cure all ills”. Again we would never recommend this but the client may elect to do so.
• In doing the financial plan for the client we may determine that based on the return on the portfolio, the client cannot achieve his or her goals, and they cannot save enough or take other action to rectify the problem. As such the client may consciously elect to move to a more aggressive portfolio than their natural risk inclination – because they would rather do that than delay their retirement or reduce their future financial expectations.

In all these circumstances, it is important for the advisor to record this information and the reason for them in the “restrictions” box so that they are presented in the IPS document.

This best practice should be maintained whether using the PlanPlus risk profile or FinaMetrica.

These comments will usually be accompanied by setting the Target mix on the Asset Allocation to Custom, or to a higher (or lower) level than the recommendation.