Have you ever wondered how we can accurately assign a risk number to assist in protecting your assets? The answer is that we use a Raymond James approved third-party software tool called Riskalyze. Following a brief, “risk-sensitive” interview with an advisor, Riskalyze will provide context from a numerical standpoint to categorize risk and to place a “risk number” on each individual client. After using Riskalyze regularly for approximately 18 months, we are confident that Riskalyze is accurate. In fact, over 20,000 advisors, including us, actively use and trust this software. It has the capability to correct a misaligned profile and can illustrate to clients how to better align their portfolios with their “real” risk tolerance. As mentioned, we interview the client and make a determination of what their risk tolerance is. We then put together a portfolio that they are both comfortable, and confident in. The existing assets and profile will be seamlessly imported to decide the best direction for the portfolio. Riskalyze takes the portfolio or allocation of investments and looks at its performing history to tabulate a score of risk per specific investment. From there, all of the information is aggregated to statistically create a risk score. The scores range from 1 being extremely conservative and 99 being the most up and coming startup stock (risky). On average, the stock market itself (S&P index) has a score of about 74. This enables the client to see a numerical value that is below or above this numerical baseline. The client will receive an expected value of return from a one year to a 5-year timeframe, as well as an estimated loss.
So, how does Riskalyze statistically work? Riskalyze takes a 6 month moving average of investments and calculates a risk number within 2 standard deviations, which creates a 95% confidence interval. It will show the highest and lowest percentage of return and gives an extreme range in dollar expectancy for losses and gains. This gives the client something very powerful to base their investments off of. Riskalyze uses 3 main factors in the calculation:
- How much risk do your clients want?
- How much risk do your clients currently have?
- How much risk do your clients need to reach their goals?
In addition to being useful for advisors, clients can log in and see their balance and progress towards goals. There is also an email check-in feature to message the client to see if we can help them in any way. One feature we use quite a lot is the Timeline feature, which makes a retirement map to see how various scenarios will affect the client over time. Riskalyze creates an exceptional way to put investments into different perspectives and is another value add that you’ll see with Butler Financial.
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