Proposals

proposals

As a financial advisor, one of your primary jobs is to make sure the investments you recommend to clients are suitable and in their best interest. This can be accomplished by developing an investment profile for each client to make sure their goals and risk profile match the recommended investment products.

 

At Potomac, we are always exploring ways to improve our process because there are always new questions to ask and different opportunities to consider, such as:

 

  • Can we create a questionnaire that digs deeper into a client's profile and comes up with a usable risk score?
  • Can we show how individual and combined strategies perform on a risk-adjusted basis?
  • Can we articulate risk in a different manner, such as forward-looking stress testing?

How well do you know your client?

Our proposal system starts with the client workflow, where an advisor can send a survey to the prospective client to complete via email or on paper. These survey questions are designed for a client to explore how their risk profile comes together, focusing on their goals, financials and risk tolerance.

 

  • Goals: What is the main goal AND time horizon for a client’s investable assets?
  • Financials: What is a client's net worth, income and investing experience?
  • Risk Tolerance: What trade-off between risk and return are they prepared to make? How will they react emotionally to a large loss (including graphically asking the client to choose which investing experience they prefer.)

 

Once all 10 questions are answered, the system will calculate a risk score, but not in the way you may expect. Most software solutions calculate a risk score between 0 to 100, which correlates to some sort of vague measurement. While we admit this method is better than nothing, we felt it was important to make the client's risk score something they could understand.

 

Our system calculates a risk score that corresponds to the ACTUAL level of drawdown a client is willing to tolerate. We feel strongly that drawdown is the most important risk metric investors should weigh when making investment decisions.

 

proposals

Making the recommendation

When an advisor has a real risk-score number to work with, it is considerably easier to create a custom solution that may include one or more Potomac portfolios as part of their overall recommendation. As an advisor, you can create various scenarios to properly discuss risk with your client.

 

Various scenarios include:

 

  • Completing a risk assessment for existing investments
  • Comparing existing investments to an individual or sleeve of Potomac strategies
  • Comparing an individual or sleeve of Potomac strategies to the appropriate index automatically
  • Adding a Potomac strategy (or strategies) as a sleeve to an existing portfolio

 

The goal for you as an independent financial advisor is to have an open and transparent conversation with your client about risk. The risk-score profile visually shows clients the risk and return trade-offs of various investment allocations. If you are using any proposal system just to compare performance, then you have just fallen into the trap of “performance chasing”.

How does this help my practice?

The clear majority of financial advisors are offering clients portfolios built around static strategic (i.e., buy and hold) models. If you dare to be different and like the idea of having a more effective tool to discuss risk with your clients, you should ask some new questions.

 

  • How did strategic models perform in previous bear markets?
  • How much are your clients paying to offer a portfolio that is not going to move to cash to avoid a catastrophic loss?
  • What experience are you creating for clients with your current portfolio selections?

 

The industry is frothy with "robo-advisor" iterations and other “cheap” solutions. There is a huge risk that the cost of holding the wrong securities far outweigh the cost of a management fee. 

 

Our new system will help uncover the possible risk from a prospective portfolio. In fact, knowing this information is paramount in reminding current clients why you helped them choose risk management over performance chasing.

LEARN WHAT POTOMAC CAN DO FOR YOU

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