In times of market volatility, investors often fear the potential negative impacts a downward swing may have on their financial futures.
As a financial advisor, you know that perhaps a greater risk than a short-term loss is the long-term consequences of letting fear drive an investor out of the market. History has shown time and again that it’s not possible to time a “buy low, sell high” strategy reliably. The investors with the greatest chance at success over the long term are those who remain invested despite volatility today.
It's your job to guide clients through these times of market volatility with calm, reason, and an eye toward keeping them invested while trying to minimize their downside when possible.
Portfolio risk analysis software is designed to help you do just that. It provides you with more data you can use to calm client fears and have grounded discussions in the face of market volatility. It also gives you greater insight into potential risks — and even possible upside opportunities — so that you can continue to advise clients in accordance with your fiduciary duty.
Here, we’ll take a closer look at how portfolio risk analysis software helps you deliver on these essential components of your job, regardless of what the markets are doing. At both the individual client and firm-wide level, embracing portfolio risk analysis software can positively impact your work.
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Portfolio Risk Analysis Software: Supporting Clients and Advisors
The foundation of any productive advisor-client relationship is understanding. As an advisor, you must understand your client’s goals, dreams, needs, and fears to earn their trust and craft a plan that serves them.
When facing a volatile market period, strengthening your grasp on a client’s feelings around risk is especially important.
Risk analytics software introduces conversations around risk tolerance and risk appetite from day one, with risk questionnaires that get to the heart of how willing and able your client is to weather the ups and downs of the market.
Portfolio risk analysis software can then leverage the risk score you generate from this questionnaire to help you create an investment strategy that aligns with your client’s risk appetite.
A risk analysis tool that integrates with your model management platform enhances your ability to create a personalized investment plan. With Orion Risk Intelligence, you can access a centralized model marketplace — with all models available to your firm, whether your own or from a third-party strategist — and blend and adjust models until you find the right combination for each client.
Finally, portfolio risk analysis empowers you to run your proposed strategy through scenario stress testing. You can do this during initial portfolio creation to ensure that you’ve taken steps to insulate against hypothetical downside risks in any number of relevant scenarios.
Run the portfolio through a general scenario, like an economic recession, or select scenarios that are more applicable to current events, like one focused on high inflation.
The real beauty of a portfolio risk analysis tool is that it’s designed to assist you and your clients for the long haul. When your client’s risk appetite shifts or market conditions change, you can quickly reassess your investment strategy. If the plan you’ve been operating with so far no longer suits your client’s needs, portfolio risk analysis software makes it easy to adjust, re-test, and implement appropriate changes.
Portfolio Risk Analysis Software: Powering Firm Compliance and Growth
Risk-related decisions don’t just impact the advisor and client at the individual level. How your firm handles risk is crucial to its overall health — it has implications for your compliance program, your ability to deliver on your fiduciary duties, and your firm’s growth potential in times of market turmoil.
When you choose to use portfolio risk analysis software at the firm level, you create cohesion for your team and strengthen your firm’s ability to endure volatility. How?
It starts with unifying and standardizing your team’s work. A risk analysis software solution allows you to create a risk methodology and scoring approach at the firm level. When every advisor uses the same framework to assess each client’s risk, you are better positioned to ensure your advisors fulfill their fiduciary duties.
Next, you can create a centralized model marketplace for all of your advisors to access, giving them greater control over the process of creating an investment strategy for each client. A portfolio risk analysis software tool allows your team to access Advisor as PM and any firm-wide or third-party models, consolidating distribution and improving advisor efficiency.
Finally, a portfolio risk analysis solution gives your advisors access to portfolio stress testing tools. Advisors can use pre-designed scenarios, which reflect hypothetical risks in the case of relevant macro events, or they have the flexibility to create their own scenario free-form to address any risks they or their clients are focused on.
Centralizing your firm’s approach to risk analysis also enhances your compliance and supervision. When your firm can provide advisors with a codified approach to risk — one risk questionnaire, one risk methodology and scoring system, and one stress-testing tool with shared scenarios — your leadership team can feel more confident that risk-related work is being done in line with your firm’s policies, procedures, and expectations.
Portfolio risk analysis provides your entire team with a smarter, more efficient way to work in times of market volatility. With a software solution to streamline behind-the-scenes work for your advisors, you free up time in their day which they can reinvest in meeting with clients. This additional time spent addressing concerns and sharing vital guidance can be the difference between a panic-selling event and a level-headed approach to facing the market’s ups and downs.
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