Risk Profiling for Medical Professionals

February 2nd, 2012

With limited exception, a meeting with a financial planner will always involve a discussion around the risk profile of the client. This usually takes the form of several structured question to determine the client’s perception of how they view investment ‘risk’ and how volatility in their investments might impact their emotions and decisions. An aggressive high risk investor would typically have 80% in growth assets (Aus and International Shares / property) and 20% in conservative assets (cash and fixed interest), with a low risk investor being the opposite, say 20% growth to 80% conservative.

Clients need to be wary of general terms used to describe some investments, such as Balanced, as this can be anything from a 50%/50% to 65%/35% growth/conservative split.

It is very important to understand that there is often a difference of view within a couple, typically the male is more willing to take risk and the female will err on the side of caution, so if this is you, the best thing to do is to explain this to your adviser so they can develop a plan sympathetic to both profiles.

Key elements in risk profiling often come back to the timeframe you have available to invest, the chance that you may require access to those funds, and your resolve in the face of adverse market movements. This can appear very academic at the time, but your risk profile provides a key insight that allows an adviser to understand their client.

It is important to keep this risk profile in context however, especially for the high income medical professional, who will most likely achieve their financial goals with a sound financial plan and a minimum of investment risk. So don’t take excessive investment risk for the sake of it, always keep in mind that your overall investment risk or asset allocation is the means to an end, not the end itself.

Any financial plan must start with a clear understanding of your short, medium and long term financial and lifestyle goals. You then look at the current position and ongoing resources available to achieve these goals. It is this process that will ultimately determine how much investment risk is required to achieve your goals.

This required risk should then be checked back against your risk profile to determine whether the proposal will in fact fall outside or inside your risk tolerance. Most Medical Professionals will manage to achieve their goals within the tolerances they have set themselves; as such the decision to take on a higher level of risk becomes a matter of choice.

Those in the early stages of building their wealth may be required to operate outside their tolerances in order to achieve their goals, the discussion needs to then move towards management of specific risks that form the primary concerns for the client. This can be in the form of increased insurances or maintaining a higher cash reserve for emergencies or just as a ‘safety blanket’.

At the end of the day, a satisfactory result in the ‘sleep test’ is the key outcome that we seek for our clients. In order to be comfortable with your investments and the direction of your financial plan, you must understand the various elements and believe that it will achieve the goals you have set.

Contact a MEDIQ Medical Wealth Strategist to discuss whether your investments match your objectives and risk profile.