The ProQuest
Newsletter is for
members of the
Australian and
International financial
planning community.

We provide you with
selected information
on financial planning
developments, news
items and trends both
in Australia and
overseas.

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 risk-profiling.com 
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and value adding
information

The Future
Ain't What It
Used To Be
- A US View


Harold Evensky, CFP
is past Chair of the
CFP Board
of Standards and was recently voted as the most influential financial planning professional by readers of Financial Planning Magazine).

.

- Jack Welch of GE

In the belief that forewarned is forearmed, ProQuest is pleased to make available a paper which details announced industry changes from mid-1999 to late 2000. The author is Harold Evensky, CFP of the Evensky Group (and also author of 'Wealth Management') 

Download "The Future Ain't What It Used To Be"  (64K Acrobat .pdf file)

Risk Profiling
and Gearing

by Geoff Davey,
Joint Managing
Director of
ProQuest

Click here
 to download
"Risk Profiling
and Gearing"

.

Geared investing is high risk. Historically, an Australian Equities portfolio has a less than one-in-twenty chance of returning a loss over five years whereas, fully geared, the chance of loss is greater than one-in-four (see Fig 7 in the paper.) It is ironic that though geared investments are riskier than ungeared, there is better information about ungeared risk.

Gearing takes two forms: strategic, where the client's overall position is geared because goals cannot be achieved with 100% Growth assets; and tactical, where individual investments are geared but not the overall position.

Risk profiling serves to make explicit the psychological and compliance issues an adviser must consider when formulating a gearing recommendation. This paper explores these issues and suggests a systematic approach to geared investing which allows all concerned to take advantage of the opportunities while managing the risks.

Download "Risk Profiling and Gearing" (159K Acrobat .pdf file)

Learning to
Value Volatility
...and Profit by
Doing So

Click here
  to download
"Learning to Value Volatility"

.

1. The amount of money needed is an unknown.  If there is any estimate at all, it is usually an under-estimate, sometimes a gross under-estimate.

2. There is confusion about what is meant by “risk”.  When investment professionals talk about the “risk” involved with a well-constructed investment portfolio, they mean that there is uncertainty about the portfolio’s specific future performance because returns will vary from one period to the next and/or the value of the portfolio will vary from time to time. Whereas, what many investors hear, is that there is a risk of losing all their money.

3. The relationship between risk and return is not appreciated. Generally, the greater the risk (volatility), the greater return. Markets pay a “return premium” to those investors willing to accept uncertainty about the future performance of an investment.

4. A small improvement in the average annual return of long term investments will produce a very large improvement in the final outcome. (This is often referred to as “the power of compounding returns.”)

Our natural preference in life is for certainty. Yet we manage to live with uncertainty every day. For your clients, understanding the value of volatility is a critical step in making the most of their investment opportunities. The aim of this booklet is to help you help your clients fill the last three of the knowledge gaps.

Download "Learning to Value Volatility" (315K Acrobat.pdf file)

Risk
Tolerance
- A State
Or Trait ?

Click here to
download 
"Financial Risk Tolerance - A State or Trait"

.

Ulla Y. Yip (under the supervision of Dr. Austin Adams and Dr. Jim Bright of the University of New South Wales), in a recent thesis submitted for the degree of Master of Psychology (Organisational), examined the robustness of financial risk tolerance as a psychological trait.

A psychological trait is a distinguishable, relatively enduring way in which one person varies from another. A psychological state is also a distinguishable, way in which one person varies from another but it is more transient.

Ms Yip's paper reviews existing research literature and reports the results of a test/re-test trial she conducted.

In the trial, one hundred and twenty-nine finance students each managed a portfolio for eight weeks in an on-line trading simulation organised by the School of Finance, UNSW and hosted by The Virtual Sock Exchange, www.virtualstockexchange.com. 

Interestingly, the April 2000 NASDAQ crash occurred in week four of the competition and most participants' portfolios incurred losses from which they did not recover.

Financial risk tolerance was measured three times - pre, post and follow-up - and was found to be stable. There were some indications of slight increases in risk tolerance which were attributed to increased confidence arising from the eight weeks of trading experience. Generally males were found to be more risk tolerant than females, which was also reflected in their trading strategies. However, as has been reported by researchers elsewhere, other demographic and socio-economic factors were found not to be significant predictors of financial risk tolerance.

In summary, based on a review of the literature and the results of the trial, it was concluded that financial risk tolerance is better considered as a trait and not a state.

ProQuest is excited that new Australian research is contributing to the growing body of international knowledge about this critical element in the financial planning process.

Download "Risk Tolerance - A State or Trait?" (91K Acrobat .pdf file)

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 risk-profiling.com 
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Financial Counselling and Planning

Financial Counselling and Planning is the research journal of
The Association for Financial Counselling and Planning Education.

The Association for Financial Counselling and Planning Education is a non-profit, professional organisation comprised of researchers, academics, and financial counsellors, educators and planners.

The purposes of the organisation, as stated in its Bylaws are to

1) promote improved personal financial management education,

2) to promote the education, training, and certification of financial counselling and planning professionals,

3) to promote research in personal financial management, and

4) to disseminate research findings and program methodologies related to financial counselling and planning education.

Financial Services Review

The Financial Services Review is the official publication of the
Academy of Financial Services.

The primary objectives and purposes of the Academy of Financial Services are to:

• encourage basic and applied research in the area of personal financial planning and financial services;

• encourage the development of the curricula in the financial services field at the university level; and

• encourage interaction between financial services professionals and academicians.

The Financial Services Review is a refereed academic journal which focuses on rigorous empirical research that examines individual behaviour in terms of financial planning and services. In contrast to the many corporate or institutional journals that are available in finance, the focus of this journal is on individual financial issues.

ProQuest
User Survey
Results

Click here to
Download "ProQuest User Survey"

.

>> 90% of respondents reported that new clients react positively to their completed Risk Profile, with the balance reporting a neutral reaction - no negative reaction was reported.

>> 94% of respondents report that their compliance processes are More
Effective or Much More Effective since using ProQuest in their planning
practice.

>> 87% of respondents report that the quality of their financial advice is
Better or Much Better since using ProQuest in their planning practice.

>> 83% of respondents identify ProQuest as having improved their firm's
relationship with clients.

>> 95% of respondents reported integrating ProQuest into their practice
processes as being Easy or Very Easy.

If you'd like to discuss any aspect of this report, please contact Bruce Mills
by phone (02) 9296 1970 or e-mail bmills@proquest.com.au

Download "ProQuest User Base Survey results" (95K Acrobat .pdf file)

What People
are Saying
about
ProQuest

.

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information

- Harold Evensky

THE FUND MANAGER: Lester Wills,
Mercantile Mutual Funds Management.

"We are pleased to be taking a leading role in the provision of an easily-accessible new Australian technology that converges on so many aspects of the current financial planning agenda: improved compliance, superior 'know the client' capability, and accurate needs-based planning. ProQuest adds value to the MercAdviser community."

THE SOFTWARE DEVELOPER: Robert Green, Vision FPS

"We often get comment from planners who use both ProQuest and VisiPlan describing the powerful impact that they achieve in their client meetings by graphically demonstrating the interaction of risk tolerance, projected returns and the long term result on the client's savings, spending and net wealth."

THE RESEARCHER: Graham Rich, Morningstar

"In Morningstar's opinion, ProQuest has set a new international benchmark for investor risk profiling. It is unparalleled in its ability to comprehensively reflect investor attitudes to risk. Morningstar is committed to integrating ProQuest into its range of portfolio building services.

Without a clear and accurate picture of their risk profiles, it is unlikely that investors will be as comfortable with the investment results achieved, or the paths taken to get there. In any event, an adviser is obviously engaging in a high risk activity by not pursuing a quality risk profiling approach."

THE COMPLIANCE SERVICES PROVIDER: Adam Tayler, THP Services

"Having completed over thirteen thousand adviser compliance reviews, the inescapable conclusion is that current methods of assessing client risk tolerance need much improvement. All planners would benefit from having a systematic and documented approach to risk profiling."

Trial ProQuest
for Free

Click to
Download
"How to Use
ProQuest with
a New Client"

.

Why Trial ProQuest?

In an October 2000 survey of ProQuest users, three key benefits consistently appeared as most valued:

1. Improved Client Goodwill

Clients enjoy doing the risk tolerance questionnaire and seeing their risk profiles. They appreciate having an independent third party's scientific assessment of what they know is a critical input to the planning process. ProQuest users benefit from processes that rapidly build trust with their clients while demonstrating the advisers problem-solving expertise in a context the client can appreciate.

2. Better and More Efficient Advice

ProQuest users enjoy the benefits of having a clear articulation of the client 's risk tolerance and then being able to relate that to specific strategies needed to achieve the client 's goals: again aiding focused problem-solving and achieving a considerable saving in adviser time.

3. Stronger and More Effective Compliance

Compliance must not only be done, it must be seen to be done. ProQuest demonstrates that risk tolerance was scientifically assessed and provides an objective report upon which advisers (and their dealers!) can rely if things go wrong later.

If you'd like to know more about ProQuest or trialing the ProQuest Personal Financial Risk Profiling system, visit
www. risk-profiling.com