From Plan to Portfolio
Many advisors depend on a customer suitability assessment which typically includes questions such as customer age, investment acumen, salary, and current level of wealth to gauge the customer’s general level of risk tolerance. The answers to these questions are then used to produce an appropriate risk-based asset allocation portfolio using mean-variance optimization. In this manner, large firms can sell a standardized set of risk based conservative, moderate, and aggressive portfolios to customers in a regulatory compliant and efficient manner.
Contrast this with the needs-based planning approach, in which an advisor works with clients to identify their specific goals and individualized needs. The advisor then proposes and implements solutions that fit the unique circumstances of each client. The focus is placed on building confidence around achieving specific outcomes, rather than using standardized solutions from a common questionnaire.
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