2016 strategic asset allocation and risk profiles guide saa and risk profiles... · 3 welcome to...

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2016 Strategic

Asset Allocation and

Risk Profiles Guide

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Contents

Welcome to the 2016 Strategic Asset Allocation and Risk Profiles ............................ 3

Reviewing the SAA framework and risk profiles ................................................................................. 4

Bringing you a wealth of benefits ........................................................................................................ 4

What’s changed as a result of the review? ......................................................................................... 4

2016 Strategic Asset Allocation and Risk Profiles ..................................................... 5

Strategic Asset Allocation ................................................................................................................... 5

Risk Profiles ........................................................................................................................................ 6

2016 Strategic Asset Allocation and Risk Profiles overview .............................................................. 7

Summary of asset allocation changes to the 2016 Risk Profiles ........................................................ 8

Strategic Asset Allocation and Risk Profile changes ........................................................................ 14

2016 Strategic Asset Allocation compared to Ventura and vMAPs .................................................. 15

2016 Strategic Asset Allocation compared to Ventura and vMAPs (continued) .............................. 16

2016 Strategic Asset Allocation compared to Lonsec and Zenith .................................................... 17

2016 Strategic Asset Allocation compared to Lonsec and Zenith (continued) ................................. 18

2016 Risk Profile Questionnaire ............................................................................... 19

Further information ................................................................................................... 20

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Welcome to the 2016 Strategic Asset

Allocation and Risk Profiles

On 1 March 2016, we’re launching our 2016 Strategic Asset Allocation and Risk Profiles. This follows an extensive review process and supports our commitment to provide you with a best-practice, solid framework to help you meet your client’s investment goals. The 2016 Strategic Asset Allocation and Risk Profiles will replace the strategic asset allocation and risk profiles currently in place and you’ll have until 1 March 2018 to transition your clients to the new framework. We’re committed to making this transition as smooth as possible for you. This guide will provide you with all the details of the 2016 Strategic Asset Allocation and Risk Profiles, including changes to defensive/growth splits, and information on the 2016 Risk Profile Questionnaire. This should be read in conjunction with the 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. This will give you everything you need to know about how this affects your clients. It also provides information on your next steps and guidance on how to stay on track to meet your compliance obligations.

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Reviewing the SAA

framework and risk

profiles In May 2015, we undertook a review of our Strategic Asset Allocation (SAA) and risk profiles in collaboration with our primary asset consultant, Ibbotson Associates. Read more about Ibbotson in Appendix 1. The key objective of the review, and subsequent changes, was to ensure that you and your clients had access to a robust SAA framework, risk profiles that better reflected long-term asset class valuations and risk, and a risk profile questionnaire that was simpler to use, more effective and met global best-practice. What formed part of the review

Review the current SAA to determine structure and suitability.

Review of the current risk profiles, defensive/growth splits, appropriateness and objectives.

Risk profile stress testing for different market scenarios.

Review of the underlying asset class allocations.

Possibility of adding a risk profile; better alignment and uniformity of defensive/growth splits and overall objectives.

Forecast expected long-term return and risk assumptions of each underlying asset class.

New capital markets assumptions (CMAs) (Ibbotson Associates) – forecasting asset class returns.

The Risk Profile Questionnaire (RPQ). Read more about the review process in Appendix 2.

Bringing you a wealth

of benefits

The 2016 SAA and Risk Profiles provide you

with a superior mix of asset classes providing

a solid set of building blocks to help reach your

clients’ investment objectives and goals.

Benefits of revising our SAA

and risk profiles

1. Global best-practice solutions to meet your clients’ needs.

2. Strategic asset allocations and risk profiles more in-line with individual asset class expected risk/return over the long-term.

3. More accurately reflects the optimal asset class mix based on long-term asset class valuations.

4. Manage client expectations more effectively, that is appreciating that risk is more than just return variability and that it should also take into account the probability of capital loss and the changes in the economic environment.

5. Better alignment and uniformity of defensive/growth splits.

6. Greater diversification through the introduction of Diversified Alternatives and International Infrastructure.

7. Renamed risk profiles to better reflect the underlying defensive/growth splits.

8. Enhanced RPQ to provide greater insight and clearer understanding of client attitudes to risk and risk tolerance.

What’s changed as a

result of the review? There have been significant changes as a result of the review and topline changes include:

rebalancing the risk profiles and underlying asset allocations

renaming the risk profiles

introducing a new risk profile

updating the Risk Profile Questionnaire (RPQ).

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2016 Strategic Asset Allocation and

Risk Profiles

Our 2016 Strategic Asset Allocation and Risk Profiles will launch 1 March 2016 and provides a long-term strategy for a set of investment objectives. This has been developed to assist you to meet your clients’ goals and objectives over varying investment timeframes.

Strategic Asset Allocation The SAA is the neutral position for the proportional allocation of capital to respective asset classes in a portfolio constructed to optimise returns for a given level of risk. How much capital is allocated to each asset class is determined by a number of key factors such as long-term (in excess of 10 years) expected risk, returns and correlations of performance between the asset classes. The SAA disregards fluctuations of financial markets through the business cycle. Adaptations of the SAA are also in place that allow for slight variations (+/- 10%) to the assigned neutral positions.

Defensive and growth assets

Defensive assets

Cash

Fixed Interest – Australian

Fixed Interest – International

Diversified Alternatives

Growth assets

Property / Infrastructure – Australian

Property / Infrastructure – International

Australian Shares

International Shares (hedged and unhedged)


Alternative assets

Alternatives are investments/assets and/or strategies that demonstrate non-traditional characteristics and other characteristics such as their relative illiquidity, complexity, lack of or limited regulatory oversight, and higher management costs.

Alternatives have both defensive and growth characteristics however the asset class has been allocated to the growth sector only within Compass. Read more in our Implementation and Transitions Guide.

Alternative assets may include, but are not limited to:

Hedge funds

Commodities*

Managed futures

Global macro*

Private equity*

Absolute return funds

Structured investments

Unlisted property*

We believe alternative assets provide the opportunity to increase the overall risk-adjusted outcome of portfolios across the risk spectrum and provide an opportunity to access return drivers beyond those of traditional asset classes. *Not currently available on the Approved Product List.

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Risk Profiles In conjunction with our revised SAA, we’ve updated our risk profiles. Changes include renaming our risk profiles and creating an additional risk profile, a “traditional” Defensive Risk Profile.

The 2016 Risk Profiles have been matched to the former risk profiles based on their defensive/growth splits and underlying asset allocations. The Defensive Risk Profile is considered a new risk profile as there was no former risk profile that matched according to its defensive/growth split.

Former risk profiles

Corresponding 2016 Risk Profiles

- Defensive

Defensive Conservative

Moderately Defensive

Balanced

Balanced Growth

Growth High Growth

High Growth High Growth Plus

Defensive (new asset

allocation)

The defensive investor seeks the potential for

a consistent income return by investing in a

diversified portfolio of predominantly income

asset classes, with a small proportion of

growth asset classes. A low risk of capital loss

can be expected, but overall returns are likely

to be lower.

Conservative (formerly

Defensive)

The conservative investor seeks the potential

for a consistent income return and a modest

amount of capital growth by investing in a

diversified portfolio of income and growth

asset classes, with an emphasis on income

asset classes. A low to medium risk of capital

loss can be expected.

Balanced (formerly Moderately Defensive) The balanced investor seeks the potential for a moderate amount of capital growth along with a consistent income return by investing in a diversified portfolio of growth and income assets. A medium risk of capital loss can be expected.

Growth (formerly Balanced) The growth investor seeks the potential for capital growth through investing in a diversified portfolio of growth and income asset classes, with an emphasis on growth asset classes. A medium to high risk of capital loss can be expected.

High Growth (formerly Growth) The high growth investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth asset classes, with a small proportion of income asset classes. A high risk of capital loss can be expected.

High Growth Plus (formerly High Growth) The high growth plus investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth assets. A high risk of capital loss can be expected.

Read more about the 2016 Risk Profiles in Appendix 3.

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2016 Strategic Asset Allocation and Risk Profiles

overview

This table provides an overview of the defensive/growth splits and underlying asset allocations for the new risk profiles.

Asset Classes Defensive Conservative Balanced Growth High

Growth High

Growth Plus

Defensive Assets

Cash 36% 28% 18% 9% 4% 1%

Fixed Interest – Australian 30% 24% 18% 11% 6% 0%

Fixed Interest – International 19% 15% 10% 5% 0% 0%

Growth Assets

Australian Shares 5% 9% 15% 21% 28% 33%

International Shares* 6% 10% 22% 31% 37% 42%

Property / Infrastructure –

Australian 4% 5% 6% 6% 7% 8%

Property / Infrastructure –

International** 0% 3% 3% 7% 8% 8%

Total Defensive Assets 85% 70% 50% 30% 15% 5%

Total Growth Assets 15% 30% 50% 70% 85% 95%

Alternatives

Diversified Alternatives*** 0% 6% 8% 10% 10% 8%

Additional Information

Minimum investment timeframe

(years) 2 3 5 7 9 10

Objective returns (%) ^CPI + 0.75 CPI + 1.0 CPI + 2.5 CPI + 3.5 CPI + 4.0 CPI + 4.5

* International share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is

recommended. International Shares may also include an allocation to emerging markets depending upon client’s

circumstances.

** Recommended split between International Property and International Infrastructure is 40% / 60%.

*** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA

output will however have only a one-line item and allocate 100% to Growth.

^ Consumer Price Index (CPI): 2.50% which is the projected medium to long-term inflation rate (Source: Ibbotson Australia).

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Summary of asset allocation changes to the 2016 Risk

Profiles

The 2016 Risk Profiles have been matched to the former risk profiles based on their defensive/growth splits and underlying asset allocations. The following outlines the high level changes.

Defensive (new asset allocation)

Former risk

profile

Defensive /

Growth split (%)

New risk

profile

Defensive /

Growth split (%)

No risk profile exists N/A Defensive 85/15

Asset allocation changes

The Defensive Risk Profile is considered a new risk profile as there was no former risk profile that matched according to its defensive/growth split, however in this instance we have compared it to the former defensive risk profile. Cash

Cash weighting is 36% (▲15.5%).

This includes all term deposits less than 12 months in duration.

Fixed Interest – Australian and International

Fixed Interest – Australian weighting is 30% (▼13%).

Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.

Overall fixed interest weighting has decreased (▼5.5%) – change remains within +/-10%.

This includes all term deposits greater than 12 months in duration.

Australian and International Shares

Australian Shares weighting is 5% (▼5.5%).

International Shares weighting is 6% (▼2%).

Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.

Overall share weighting is 11% (▼7.5%) – change remains within +/-10%.

Property / Infrastructure – Australian and International

Property / Infrastructure – Australian weighting remains fairly consistent.

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Conservative

Former risk

profile

Defensive /

Growth split (%)

New risk

profile

Defensive /

Growth split (%)

Defensive 75/25 Conservative 70/30

Asset allocation changes Cash

Cash weighting is 28% (▲7.5%).



Fixed Interest – Australian weighting is 24% (▼19%)


Overall fixed interest weighting is 39% (▼16.5%)

The majority capital is reallocated to Cash, Diversified Alternatives (▲6%) and Property / Infrastructure –International (▲3%).



Australian and International Share weightings remain fairly consistent and within +/-10%.



Property / Infrastructure – Australian weighting remains fairly consistent.


Diversified Alternatives is 6% from a zero weighting.

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Balanced

Former risk profile

Defensive / Growth split (%)

New risk profile

Defensive / Growth split (%)

Moderately Defensive 54/46 Balanced 50/50


Cash

Cash weighting is 18% (▲8%).





Overall fixed interest weighting is 28% (▼16%).

The majority of this capital reallocated to Cash, Diversified Alternatives (▲8%) and Property / Infrastructure –

International (▲3%).



Australian and International Share weightings remain fairly consistent and within +/-10%.

Australian Shares weighting is 15% (▼5.5%) and International Shares weighting is 22% (▲6%) which is fairly consistent and remains within +/-10%.



Property / Infrastructure – Australian weighting is 6% (▼3.5%).

Property / Infrastructure – International is 3% from a zero weighting.


Diversified Alternatives weighting is 8% from a zero weighting.

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Growth

Former risk

profile

Defensive /

Growth split (%)

New risk

profile

Defensive /

Growth split (%)

Balanced 35/65 Growth 30/70


Cash

Cash weighting remains similar.





Overall fixed interest weighting is 16% (▼14%).

The majority of this capital reallocated to Diversified Alternatives (▲10%), International Infrastructure (▲4%) and International Property (▲3%).



Australian Shares weighting is 21% (▼10%).

International Shares weighting is 31% (▲6%).

Australian and International Shares weighting remain within +/-10%.



Property / Infrastructure – Australian is 6% (▼4%)

International Property is 3% and International Infrastructure is 4% from a zero weighting.



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High Growth

Former risk

profile

Defensive /

Growth split (%)

New risk

profile

Defensive /

Growth split (%)

Growth 17/83 High Growth 15/85


Cash

Cash weighting remains similar.





Overall fixed interest weighting is 6% (▼7.5%).



Australian Shares weighting is 28% (▼14.5%).

International Shares weighting is 37% (▲6.5%).


The majority of the Australian Share capital reallocated to Diversified Alternatives (▲10%), International Infrastructure (▲5%) and International Property (▲3%).


Property / Infrastructure – Australian weighting is 7% (▼3%).

Strategic allocation to International Property is 3% and International Infrastructure is 5% from a zero weighting.

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High Growth Plus

Former risk

profile

Defensive /

Growth split (%)

New risk

profile

Defensive /

Growth split (%)

High Growth 0/100 High Growth Plus 5/95


Cash

Cash weighting is 1% from a zero weighting.



Australian Shares weighting is 33% (▼17%).

International Shares weighting is 42% (▲2%).

Ratio of Australian Shares to International shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.

The majority of the Australian share capital reallocated to Diversified Alternatives (▲8%), International Infrastructure (▲5%) and International Property (▲3%).


Property / Infrastructure – Australian and International is 8% (▼2%).

Strategic allocation to International Property is 3% and International Infrastructure 5% from a zero weighting.



Strategic Asset Allocation and Risk Profile changes The following table illustrates the differences between the former and the 2016 Risk Profiles and the differences between the neutral asset allocation positions.

Risk Profile Cash Fixed Interest – Australian


Australian Shares

International Shares*


Property / Infrastructure – International**

Diversified Alternatives***

Total Defensive

Assets

Total Growth Assets

International

Property International Infrastructure

2016 Defensive (new asset allocation)

36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15%

2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%

Formerly Defensive 20.5% 43% 11.5% 10.5% 8% 6.5% 0% 0% 0% 75% 25%

Difference 7.5% -19% 3.5% -1.5% 2% -1.5% 0% 3% 6% -5.3% 5.3%

2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%

Formerly Moderately Defensive 10% 37% 7% 20.5% 16% 9.5% 0% 0% 0% 54% 46%

Difference 8% -19% 3% -5.5% 6% -3.5% 0% 3% 8% -4% 4%

2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%

Formerly Balanced 5% 26% 4% 31% 24% 10% 0% 0% 0% 35% 65%

Difference 4% -15% 1% -10% 7% -4% 3% 4% 10% -5% 5%

2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%

Formerly Growth 3.5% 12% 1.5% 42.5% 30.5% 10% 0% 0% 0% 17% 83%

Difference 0.5% -6% -1.5% -14.5% 6.5% -3% 3% 5% 10% -2% 2%

2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%

Formerly High Growth 0% 0% 0% 50% 40% 10% 0% 0% 0% 0% 100%

Difference 1% 0% 0% -17% 2% -2% 3% 5% 8% 5% -5%

Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * International share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. International Shares may also include an allocation to emerging markets

depending upon client’s circumstances.


*** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate 100% to Growth.

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2016 Strategic Asset Allocation compared to Ventura and vMAPs This table illustrates the differences between 2016 SAA and Risk Profiles and Ventura and vMAPs portfolios.



Australian Shares





Total Defensive

Assets

Total Growth Assets

International


2016 Defensive 36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15%

vMAPS Defensive 36% 21% 27% 6% 5% 3% 0% 0% 2% 85% 15%

Difference

vMAPS Defensive 0% 9% -8% -1% 1% 1% 0% 0% -2% 0% 0%

2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%

Ventura Conservative 27% 20% 18% 11.5% 10.5% 1% 4% 0% 8% 73% 27%

vMAPS Conservative 29% 17% 21% 12% 9% 4% 0% 2% 6% 70% 30%

Difference

Ventura Conservative 1% 4% -3% -2.5% -0.5% 4% -4% 3% -2% -3% 3%

vMAPS Conservative -1% 7% -6% -3% 1% 1% 0% 1% 0% 0% 0%

2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%

Ventura Diversified 50 13% 17% 16% 21% 20% 1% 3.5% 0% 8.5% 54.5% 45.5%

vMAPs Balanced 13% 15% 18% 21% 15% 5% 2% 3% 8% 50% 50%

Difference

Ventura Diversified 50 5% 1% -6% -6% 2% 5% -3.5% 3% -0.5% -4.5% 4.5%

vMAPs Balanced 5% 3% -8% -6% 7% 1% -2% 0% 0% 0% 0%

.

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2016 Strategic Asset Allocation compared to Ventura and vMAPs (continued)



Australian Shares





Total Defensive

Assets

Total Defensive

Assets

International


2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%

Ventura Growth 70 8% 8.5% 11% 29% 28.5% 1.5% 5% 0% 8.5% 36% 64%

vMAPS Growth 5% 9% 10% 30% 22% 6% 3% 3% 12% 30% 70%

Difference

Ventura Growth 70 1% 2.5% -6% -8% 2.5% 4.5% -2% 4% 1.5% -6% 6%

vMAPS Growth 4% 2% -5% -9% 9% 0% 0% 1% -2% 0% 0%

2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%

Ventura Growth 90 5% 3.5% 3% 34.5% 33.5% 2% 5% 0% 13.5% 25% 75%

vMAPS High Growth 3% 4% 3% 36% 28% 8% 4% 4% 10% 15% 85%

Difference

Ventura Growth 90 -1% 2.5% -3% -6.5% 3.5% 5% -2% 5% -3.5% -10% 10%

vMAPS High Growth 1% 2% -3% -8% 9% -1% -1% 1% 0% 0% 0%

2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%

Ventura High Growth 100 1.5% 0% 0% 42% 41.5% 2% 5.5% 0% 7.5% 9% 91%

vMAPS High Growth Plus 2% 0% 0% 42% 32% 10% 4% 4% 6% 5% 95%

Difference

Ventura High Growth 100 -0.5% 0% 0% -9% 0.5% 6% -2.5% 5% 0.5% -4% 4%

vMAPS High Growth Plus -1% 0% 0% -9% 10% -2% -1% 1% 2% 0% 0%

Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * International share allocation can be a combination of hedged and unhedged strategies; a ratio of

50% / 50% is recommended. International Shares may also include an allocation to emerging markets


** Recommended split between International Property and International Infrastructure is

40% / 60%.

*** Diversified Alternatives have been classified as both defensive and growth assets at a

ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate

100% to Growth.

2016 Strategic Asset Allocation compared to Lonsec and Zenith This table illustrates the differences between 2016 SAA and Risk Profiles and the Lonsec and Zenith model portfolios.



Australian Shares





Total Defensive

Assets

Total Defensive

Assets

International


2016 Defensive 36% 30% 19% 5 % 6% 4% 0% 0% 0% 85% 15%

Lonsec Stable 100% - - - - - - - - 100% 0%

Zenith – N/A No equivalent risk profile

Difference

Lonsec Stable -74% 30% 19% 5 % 6% 4% 0% 0% 0% - -

2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%

Lonsec Defensive 25% 21.5% 19.5% 8% 8% 4% 0% - 14% 80% 20%

Zenith Conservative 20% 50% 7% 7% 3% 0% 0% 13% 70% 30%

Difference

Lonsec Defensive 3% 2.5% -4.5% 1% 2% 1% 0% 3% -8% - -

Zenith Conservative 8% -11% 2% 3% 2% 0% 3% -7% - -

2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%

Lonsec Conservative 10% 21% 19% 14% 15% 6% - - 15% 60% 40%

Zenith Moderate 15% 37.5% 15% 15% 2% 2% - 13.5% 52.5% 47.5%

Difference

Lonsec Conservative 8% -3% -9% 1% 7% 0% 0% 3% -7% - -

Zenith Moderate 3% -9.5% 0% 7% 4% -2% 3% -5.5% - -

2016 Strategic Asset Allocation compared to Lonsec and Zenith (continued)



Australian Shares





Total Defensive

Assets

Total Defensive

Assets

International


2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%

Lonsec Balanced 5% 15% 14% 19% 20% 6% 2% 3% 16% 40% 60%

Zenith Balanced 0% 33.5% 22.5% 22.5% 3% 3% - 15.5% 33.5% 66.5%

Difference

Lonsec Balanced 4% -4% -9% 2% 11% 0% 1% 1% -6% - -

Zenith Balanced 9% -17.5% -1.5% 8.5% 3% 0% 4% -5.5% - -

2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%

Lonsec Growth 2% 8% 7% 26% 28% 7% 2% 3% 17% 20% 80%

Zenith Growth 16.75% 30% 30% 4% 4% 0% 15.25% 16.75% 83.25%

Difference

Lonsec Growth 2% -2% -7% 2% 9% 0% 1% 2% -7% - -

Zenith Growth 4% -10.8% -2% 7% 3% -1% 5% -5.3% - -

2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%

Lonsec High Growth 0% - - 34% 36% 7% 2% 3% 18% 0% 100%

Zenith High Growth 0% 0% 37.5% 37.5% 5% 5% 0% 15% 0% 100%

Difference

Lonsec High Growth 1% 0% 0% -1% 6% 1% 1% 2% -10% - -

Zenith High Growth 1% 0% -4.5% 4.5% 3% -2% 5% -7% - -

Numbers highlighted indicate where the 2016 SAA is less than the Lonsec and Zenith allocations.

* International share allocation can be a combination of hedged and unhedged strategies; a ratio of

50% / 50% is recommended. International Shares may also include an allocation to emerging markets



*** Diversified Alternatives have been classified as both Defensive and Growth assets at a ratio of

50% / 50%. Compass output will however have only a one-line item and allocate 100% to Growth.

Lonsec

1. Allocate Alternatives to both the Defensive and Growth asset classes at various ratios.

Total Defensive and Growth altered accordingly.

2. Australian Property also include Direct Property. 2% in Defensive profile, 3% in

Conservative to High Growth)

Zenith

1. SAA and risk profiles refer to the Elite Blend model portfolios.

2. Alternatives also include multi-asset strategies

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2016 Risk Profile Questionnaire

Our 2016 Risk Profile Questionnaire is much simpler to use with your clients. It helps you to understand their attitude to investment risk and develop an investment strategy to reach their financial goals and objectives.

In developing our new Risk Profile

Questionnaire (RPQ), we used Ibbotson’s risk

tolerance questionnaire as the basis as it was

developed by a team of behavioural science

experts including Daniel Kahneman. Daniel

Kahneham is a psychologist notable for his

work on the psychology of judgment and

decision-making, as well as behavioral

economics, for which he was awarded the

2002 Nobel Memorial Prize in Economic

Sciences.

20

Improvements and

enhancements

The new questionnaire consists of eight questions and is eight pages in total, four pages shorter than our current version.

Graphs and tables are used throughout to provide visual guides to the questions.

The educational component has been removed, but information has been updated and is available on Compass and in the Advice and Technical Content Library.

A SMSF/Entity declaration has been added allowing you to use one document for both the individual clients and the SMSF if appropriate.

The RPQ will be available as a pdf and word version and will be coded into the Compass.

Considerations

As the questionnaire only relates to risk tolerance it may result in clients being rated more conservatively than our previous RPQ.

However there is still the ability to vary the profile where it is agreed between the client and the adviser (and it is in the client’s best interests).

Additional questions have been added to the Client Data Form (CDF) to ensure that advisers are prompted to ask clients questions about their previous investment experience and capacity for risk.

Further information

Refer to the appendices to learn more about the 2016 Strategic Asset Allocation and Risk Profiles. If you’d like to know about how this affects your clients, then read our 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. It also provides information on your next steps, and guidance on how to stay on track to meet your compliance obligations.

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