How we Incorporate Your Model Portfolios

How we incorporate your Model Portfolios

Incorporating your firm’s Model Portfolios are essential for calculating a client’s Risk Comfort Score with each of the model portfolios you offer them. The Comfort Match score represents the utility a client gets from each of the model portfolios your firm offers relative to the other model portfolios. The utility from each of the portfolios depends on the unique risk preferences of each client.

Every model portfolio your firm offers has an expected return for a certain level of risk. We incorporate your firm’s specific capital market assumptions to understand the level of risk for each of the model portfolios.

To demonstrate, please see the below chart:

We use the model portfolios (red) offered by your firm to estimate your firm’s efficient frontier. The efficient frontier represents the collection of portfolios that maximize returns for the assumed risk. The intermediate portfolios on the frontier are points in the risk-return space that represent a hypothetical combination of investable assets. (gray)

We then use the Attitude to Risk and Sensitivity to Loss scores generated by your client in the risk profiling activity and compare it to each of your model portfolios’ risk levels and expected returns. We then provide a Risk Comfort Score to each of your model portfolios. 

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