In May 2016 the Dutch association of Banks (NVB) made an important step in improving the risk transparency of investment portfolios. The members of the NVB have agreed to use a standardised risk meter (based upon the same data and calculation methods). The entire market now uses the same investment categories and risk parameters. This risk meter has been built into the SCOPE KYC Cloud solution.

Within the SCOPE KYC Cloud solution, the investment manager can configure the profile names and the underlying model portfolios. This means that for every risk profile the percentile distribution over investment categories needs to be set up, so that the risk of this profile can be displayed on the built-in risk meter. The risk meter is displayed as a component of the selected risk profile during scenario analysis to determine risk tolerance.

Recording crucial components of an interview

Besides presenting scenarios and the choice for the final risk profile it is also important that components which have been discussed during the consultation which are important to the risk acceptance of the client are recorded in the client dossier. For this the SCOPE KYC Cloud solution offers the possibility to create a consultation report and to record the client’s answers to questions such as:

  1. What sum is the client willing to lose in a worst-case scenario? This is asked to make the risk tangible. For example, show the client a hypothetical market crash such as 2008 at the end of the investment period;
  2. Which intermediate swings are acceptable to prevent intermediate changes in the portfolio due to the emotional state of the client;
  3. How bad is it for the client if the target is not met? With targets which are not concrete, (percentile returns) questioning the return goals is important to discuss with the client the impact of not meeting their target.