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Slides used by Moneyscope founder, Richard Allum, during his presentation to delegate at the Institute of Financial Planning's Annual Conference held at Celtic Manor Resort, Wales on 4 October 2011.
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Risk & cash flows Richard Allum, Moneyscope
What the FSA said
Inadequate account of…
capacity for loss
The “problem”
Lack of understanding
Standard deviation & volatility
Poor question & answer options
Monitoring & management information
Over reliance on tools
Capacity for loss
Robust, repeatable process
Tools are start of the discussion
Other risk factors
Adjust & tailor results
The solution
Education Education Education
The solution
Hold in depth discussions
Separate processes
Full understanding of all risks
Explain in different ways
Education
Education
What is risk?
What is risk?
What is risk?
Inflation
Liquidity
Lack of diversification
Product structure
Counterparty risk
Dying at the wrong time
Types of risk
Losses more important than gains
Gains measured in %
Losses measured in ££
Investor regret
Sheep mentality
Behaviour & emotions
Behaviour & emotions
Ask the client
Compare to results from tool(s)
Show examples
Agree suitability
Select strategy
Document & review
Robust process
Don’t rely on tools
Risk & loss are different
What level of risk is needed?
Minimum return required
Is extra risk worth it?
Informed approach
Plan on target
Too much money
Unsuitable assumptions
Running out of money
Cash flow tools
Bob is 61
£100,000 current savings
Just retired
“Balanced” risk profile
Lifestyle cost of £50,000 per year
Case study
Current situation
-300,000
-200,000
-100,000
0
100,000
200,000
300,000
400,000
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£ In
vest
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t C
apita
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Bob's Age
Inform & adapt
Current situation
0
50,000
100,000
150,000
200,000
250,000
300,000
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£ In
vest
men
t C
apita
l
Bob's Age
Are your clients invested consistent with:
Their risk tolerance
Their capacity for loss
Future spending needs?
Consistency & suitability
“We took risks, we knew we took them; things have come out against us, and therefore we have no cause for complaint.”
Informed client
Robert Falcon Scott
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