Most people understand that risk is what drives return, but the concept of understanding risk before chasing return barely exists outside of the rarified world of institutional money management. Due to the asymmetry between gains and losses, failure to understand portfolio risk before chasing return may lead to large losses that would require even larger gains to achieve the desired outcome. This has the potential to significantly diminish the probability of success for investors.
Advisors know they need to educate their clients in order for them to take necessary risks to achieve their financial goals but the word “risk” is virtually absent from advisor and client conversations around portfolios. We believe there are two main reasons behind this.
First, advisors may want to understand the true level of diversification in client portfolios but the calculating risk is not easy for advisors. They are forced to decide between expensive software that is hard to use and requires sophistication or cheap excel spreadsheets that are easy to build but not robust.
Second, even after advisors have analyzed and stress testing thousands of securities, their assessment may go in one ear and out the other. Increasing their liability when the markets turn. Advisors often struggle to help even their smartest or most accomplished clients understand portfolio risk.
To make matters worse, there are many ways to look at risk, but only a subset of them are truly meaningful. Further, risk typically arises from various and intertwined sources, it can be hard to identify the right causes, and therefore difficult to identify the right approaches to manage a portfolio’s overall risk
This is where StratiFi’s PRISM technology comes in. It is revolutionizing the way advisors can effortlessly analyze portfolios for multiple risk factors and visualize them on a simple one to 10 scales, so they can easily communicate the risks to clients to educate them and earn their trust. StratiFi advisors use the platform to calculate risks for an entire book of clients and monitor portfolios to help their clients achieve desired outcomes.
StratiFi’s PRISM Ratings™ risk scoring technology provides RIAs, asset managers, and broker-dealers more insight into the risks in their clients’portfolios and their own business, so they can pick the risks they want to take. Contact the StratiFi team to find out more and get started today!