Sanlam UK says it uses index benchmarks for the risk-graded asset allocation models in its Accel discretionary fund management service because indices provide a defined risk and reward framework to clients.
The DFM says it does not build asset allocation models around peer-group benchmarks because these cannot be controlled in terms of risk.
The performance of peer-group benchmarks depend on how other managers are responding to market conditions and how much risk they are taking in their portfolios, which are factors that are outside of Sanlam’s control.
The DFM says 15 IFAs have adopted Accel’s risk-profiling tool as their house risk profile. This uses a colour wheel risk-profiler questionnaire that looks at clients’ financial goals and capacity for risk, as well as their risk tolerance.
Red is the most cautious, with a benchmark of 100 per cent cash, and violet is the most aggressive risk profile, with a composite benchmark of 49 per cent UK equities, 39.2 per cent developed market equities, 9.8 per cent emerging market equities and 2 per cent cash.
Sanlam UK head of investment solutions Rick Eling says: “The risk-profiling tool is about identifying tensions between investors’ financial goals, risk tolerance and their capacity for taking risk and helping the adviser resolve those tensions.”
Eling is building on the risk-profile tool to develop a decumulation advice system that will be based on the concept of a mixing desk.