2016 Strategic Asset Allocation and Risk Profiles Guide

Transcription

1 2016 Strategic Asset Allocation and Risk Profiles Guide 1

2 Contents Welcome to the 2016 Strategic Asset Allocation and Risk Profiles... 3 Reviewing the SAA framework and risk s... 4 Bringing you a wealth of benefits... 4 What s changed as a result of the review? Strategic Asset Allocation and Risk Profiles... 5 Strategic Asset Allocation... 5 Risk Profiles Strategic Asset Allocation and Risk Profiles overview... 7 Summary of asset allocation changes to the 2016 Risk Profiles... 8 Strategic Asset Allocation and Risk Profile changes Strategic Asset Allocation compared to Ventura and vmaps Strategic Asset Allocation compared to Ventura and vmaps (continued) Strategic Asset Allocation compared to Lonsec and Zenith Strategic Asset Allocation compared to Lonsec and Zenith (continued) Risk Profile Questionnaire Further information

3 Welcome to the 2016 Strategic Asset Allocation and Risk Profiles On 1 March 2016, we re launching our 2016 Strategic Asset Allocation and Risk Profiles. This follows an extensive review process and supports our commitment to provide you with a best-practice, solid framework to help you meet your client s investment goals. The 2016 Strategic Asset Allocation and Risk Profiles will replace the strategic asset allocation and risk s currently in place and you ll have until 1 March 2018 to transition your clients to the new framework. We re committed to making this transition as smooth as possible for you. This guide will provide you with all the details of the 2016 Strategic Asset Allocation and Risk Profiles, including changes to defensive/growth splits, and information on the 2016 Risk Profile Questionnaire. This should be read in conjunction with the 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. This will give you everything you need to know about how this affects your clients. It also provides information on your next steps and guidance on how to stay on track to meet your compliance obligations. 3

4 Reviewing the SAA framework and risk s In May 2015, we undertook a review of our Strategic Asset Allocation (SAA) and risk s in collaboration with our primary asset consultant, Ibbotson Associates. Read more about Ibbotson in Appendix 1. The key objective of the review, and subsequent changes, was to ensure that you and your clients had access to a robust SAA framework, risk s that better reflected long-term asset class valuations and risk, and a risk questionnaire that was simpler to use, more effective and met global bestpractice. What formed part of the review Review the current SAA to determine structure and suitability. Review of the current risk s, defensive/growth splits, appropriateness and objectives. Risk stress testing for different market scenarios. Review of the underlying asset class allocations. Possibility of adding a risk ; better alignment and uniformity of defensive/growth splits and overall objectives. Forecast expected long-term return and risk assumptions of each underlying asset class. New capital markets assumptions (CMAs) (Ibbotson Associates) forecasting asset class returns. The Risk Profile Questionnaire (RPQ). Read more about the review process in Appendix 2. Bringing you a wealth of benefits The 2016 SAA and Risk Profiles provide you with a superior mix of asset classes providing a solid set of building blocks to help reach your clients investment objectives and goals. Benefits of revising our SAA and risk s 1. Global best-practice solutions to meet your clients needs. 2. Strategic asset allocations and risk s more in-line with individual asset class expected risk/return over the longterm. 3. More accurately reflects the optimal asset class mix based on long-term asset class valuations. 4. Manage client expectations more effectively, that is appreciating that risk is more than just return variability and that it should also take into account the probability of capital loss and the changes in the economic environment. 5. Better alignment and uniformity of defensive/growth splits. 6. Greater diversification through the introduction of Diversified Alternatives and Infrastructure. 7. Renamed risk s to better reflect the underlying defensive/growth splits. 8. Enhanced RPQ to provide greater insight and clearer understanding of client attitudes to risk and risk tolerance. What s changed as a result of the review? There have been significant changes as a result of the review and topline changes include: rebalancing the risk s and underlying asset allocations renaming the risk s introducing a new risk updating the Risk Profile Questionnaire (RPQ). 4

5 2016 Strategic Asset Allocation and Risk Profiles Our 2016 Strategic Asset Allocation and Risk Profiles will launch 1 March 2016 and provides a long-term strategy for a set of investment objectives. This has been developed to assist you to meet your clients goals and objectives over varying investment timeframes. Strategic Asset Allocation The SAA is the neutral position for the proportional allocation of capital to respective asset classes in a portfolio constructed to optimise returns for a given level of risk. How much capital is allocated to each asset class is determined by a number of key factors such as long-term (in excess of 10 years) expected risk, returns and correlations of performance between the asset classes. The SAA disregards fluctuations of financial markets through the business cycle. Adaptations of the SAA are also in place that allow for slight variations (+/- 10%) to the assigned neutral positions. Defensive and growth assets Defensive assets Fixed Interest Australian Fixed Interest Diversified Alternatives Growth assets Property / Infrastructure Australian Property / Infrastructure Australian Shares Shares (hedged and unhedged) Diversified Alternatives Alternative assets Alternatives are investments/assets and/or strategies that demonstrate non-traditional characteristics and other characteristics such as their relative illiquidity, complexity, lack of or limited regulatory oversight, and higher management costs. Alternatives have both defensive and growth characteristics however the asset class has been allocated to the growth sector only within Compass. Read more in our Implementation and Transitions Guide. Alternative assets may include, but are not limited to: Hedge funds Commodities* Managed futures Global macro* Private equity* Absolute return funds Structured investments Unlisted property* We believe alternative assets provide the opportunity to increase the overall riskadjusted outcome of portfolios across the risk spectrum and provide an opportunity to access return drivers beyond those of traditional asset classes. *Not currently available on the Approved Product List. 5

6 Risk Profiles In conjunction with our revised SAA, we ve updated our risk s. Changes include renaming our risk s and creating an additional risk, a traditional Defensive Risk Profile. The 2016 Risk Profiles have been matched to the former risk s based on their defensive/growth splits and underlying asset allocations. The Defensive Risk Profile is considered a new risk as there was no former risk that matched according to its defensive/growth split. Former risk s Corresponding 2016 Risk Profiles - Defensive Balanced (formerly Moderately Defensive) The balanced investor seeks the potential for a moderate amount of capital growth along with a consistent income return by investing in a diversified portfolio of growth and income assets. A medium risk of capital loss can be expected. Growth (formerly Balanced) The growth investor seeks the potential for capital growth through investing in a diversified portfolio of growth and income asset classes, with an emphasis on growth asset classes. A medium to high risk of capital loss can be expected. High Growth (formerly Growth) Defensive Moderately Defensive Balanced Growth High Growth Conservative Balanced Growth High Growth High Growth Plus The high growth investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth asset classes, with a small proportion of income asset classes. A high risk of capital loss can be expected. High Growth Plus (formerly High Growth) Defensive (new asset allocation) The defensive investor seeks the potential for a consistent income return by investing in a diversified portfolio of predominantly income asset classes, with a small proportion of growth asset classes. A low risk of capital loss can be expected, but overall returns are likely to be lower. The high growth plus investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth assets. A high risk of capital loss can be expected. Read more about the 2016 Risk Profiles in Appendix 3. Conservative (formerly Defensive) The conservative investor seeks the potential for a consistent income return and a modest amount of capital growth by investing in a diversified portfolio of income and growth asset classes, with an emphasis on income asset classes. A low to medium risk of capital loss can be expected. 6

7 2016 Strategic Asset Allocation and Risk Profiles overview This table provides an overview of the defensive/growth splits and underlying asset allocations for the new risk s. Asset Classes Defensive Conservative Balanced Growth High Growth High Growth Plus Defensive Assets 36% 28% 18% 9% 4% 1% Fixed Interest Australian 30% 24% 18% 11% 6% 0% Fixed Interest 19% 15% 10% 5% 0% 0% Growth Assets Australian Shares 5% 9% 15% 21% 28% 33% Shares* 6% 10% 22% 31% 37% 42% Property / Infrastructure Australian Property / Infrastructure ** 4% 5% 6% 6% 7% 8% 0% 3% 3% 7% 8% 8% Total Defensive Assets 85% 70% 50% 30% 15% 5% Total Growth Assets 15% 30% 50% 70% 85% 95% Alternatives Diversified Alternatives*** 0% 6% 8% 10% 10% 8% Additional Information Minimum investment timeframe (years) Objective returns (%) ^CPI CPI CPI CPI CPI CPI * share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. Shares may also include an allocation to emerging markets depending upon client s circumstances. ** Recommended split between Property and Infrastructure is 40% / 60%. *** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate 100% to Growth. ^ Consumer Price Index (CPI): 2.50% which is the projected medium to long-term inflation rate (Source: Ibbotson Australia). 7

8 Summary of asset allocation changes to the 2016 Risk Profiles The 2016 Risk Profiles have been matched to the former risk s based on their defensive/growth splits and underlying asset allocations. The following outlines the high level changes. Defensive (new asset allocation) Former risk New risk No risk exists N/A Defensive 85/15 Asset allocation changes The Defensive Risk Profile is considered a new risk as there was no former risk that matched according to its defensive/growth split, however in this instance we have compared it to the former defensive risk. weighting is 36% ( 15.5%). This includes all term deposits less than 12 months in duration. Fixed Interest Australian and Fixed Interest Australian weighting is 30% ( 13%). Bias to Fixed Interest Australian still exists - ratio relative to Fixed Interest interest has decreased from 80% / 20% to 60% / 40%. Overall fixed interest weighting has decreased ( 5.5%) change remains within +/-10%. This includes all term deposits greater than 12 months in duration. Australian and Shares Australian Shares weighting is 5% ( 5.5%). Shares weighting is 6% ( 2%). Ratio of Australian Shares to Shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. Overall share weighting is 11% ( 7.5%) change remains within +/- 10%. Property / Infrastructure Australian and Property / Infrastructure Australian weighting remains fairly consistent. 8

9 Conservative Former risk New risk Defensive 75/25 Conservative 70/30 Asset allocation changes weighting is 28% ( 7.5%). This includes all term deposits less than 12 months in duration. Fixed Interest Australian and Fixed Interest Australian weighting is 24% ( 19%) Bias to Fixed Interest Australian still exists - ratio relative to Fixed Interest interest has decreased from 80% / 20% to 60% / 40%. Overall fixed interest weighting is 39% ( 16.5%) The majority capital is reallocated to, Diversified Alternatives ( 6%) and Property / Infrastructure ( 3%). This includes all term deposits greater than 12 months in duration. Australian and Shares Australian and Share weightings remain fairly consistent and within +/-10%. Ratio of Australian Shares to Shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. Property / Infrastructure Australian and Property / Infrastructure Australian weighting remains fairly consistent. Diversified Alternatives Diversified Alternatives is 6% from a zero weighting. 9

10 Balanced Former risk New risk Moderately Defensive 54/46 Balanced 50/50 Asset allocation changes weighting is 18% ( 8%). This includes all term deposits less than 12 months in duration. Fixed Interest Australian and Fixed Interest Australian weighting is 18% ( 19%). Bias to Fixed Interest Australian still exists - ratio relative to Fixed Interest interest has decreased from 80% / 20% to 60% / 40%. Overall fixed interest weighting is 28% ( 16%). The majority of this capital reallocated to, Diversified Alternatives ( 8%) and Property / Infrastructure ( 3%). This includes all term deposits greater than 12 months in duration. Australian and Shares Australian and Share weightings remain fairly consistent and within +/-10%. Australian Shares weighting is 15% ( 5.5%) and Shares weighting is 22% ( 6%) which is fairly consistent and remains within +/-10%. Ratio of Australian Shares to Shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. Property / Infrastructure Australian and Property / Infrastructure Australian weighting is 6% ( 3.5%). Property / Infrastructure is 3% from a zero weighting. Diversified Alternatives Diversified Alternatives weighting is 8% from a zero weighting. 10

11 Growth Former risk New risk Balanced 35/65 Growth 30/70 Asset allocation changes weighting remains similar. This includes all term deposits less than 12 months in duration. Fixed Interest Australian and Fixed Interest Australian weighting is 11% ( 15%). Bias to Fixed Interest Australian still exists - ratio relative to Fixed Interest interest has decreased from 80% / 20% to 60% / 40%. Overall fixed interest weighting is 16% ( 14%). The majority of this capital reallocated to Diversified Alternatives ( 10%), Infrastructure ( 4%) and Property ( 3%). This includes all term deposits greater than 12 months in duration. Australian and Shares Australian Shares weighting is 21% ( 10%). Shares weighting is 31% ( 6%). Australian and Shares weighting remain within +/-10%. Ratio of Australian Shares to Shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. Property / Infrastructure Australian and Property / Infrastructure Australian is 6% ( 4%) Property is 3% and Infrastructure is 4% from a zero weighting. Diversified Alternatives Diversified Alternatives weighting is 10% from a zero weighting. 11

12 High Growth Former risk New risk Growth 17/83 High Growth 15/85 Asset allocation changes Australian and Shares weighting remains similar. This includes all term deposits less than 12 months in duration. Fixed Interest Australian and Fixed Interest Australian weighting is 6% ( 6%). Bias to Fixed Interest Australian still exists - ratio relative to Fixed Interest interest has decreased from 80% / 20% to 60% / 40%. Overall fixed interest weighting is 6% ( 7.5%). This includes all term deposits greater than 12 months in duration. Australian Shares weighting is 28% ( 14.5%). Shares weighting is 37% ( 6.5%). Ratio of Australian Shares to Shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. The majority of the Australian Share capital reallocated to Diversified Alternatives ( 10%), Infrastructure ( 5%) and Property ( 3%). Property / Infrastructure Australian and Property / Infrastructure Australian weighting is 7% ( 3%). Strategic allocation to Property is 3% and Infrastructure is 5% from a zero weighting. 12

13 High Growth Plus Former risk New risk High Growth 0/100 High Growth Plus 5/95 Asset allocation changes weighting is 1% from a zero weighting. This includes all term deposits less than 12 months in duration. Australian and Shares Australian Shares weighting is 33% ( 17%). Shares weighting is 42% ( 2%). Ratio of Australian Shares to shares has switched from 55% / 45% to approximately 45% / 55% with Shares becoming the larger weight. The majority of the Australian share capital reallocated to Diversified Alternatives ( 8%), Infrastructure ( 5%) and Property ( 3%). Property / Infrastructure Australian and Property / Infrastructure Australian and is 8% ( 2%). Strategic allocation to Property is 3% and Infrastructure 5% from a zero weighting. Diversified Alternatives Diversified Alternatives weighting is 8% from a zero weighting. 13

14 Strategic Asset Allocation and Risk Profile changes The following table illustrates the differences between the former and the 2016 Risk Profiles and the differences between the neutral asset allocation positions. Risk Profile Fixed Interest Australian Fixed Interest Australian Shares Shares* Property / Infrastructure Australian Property / Infrastructure ** Diversified Alternatives*** Total Defensive Assets Total Growth Assets 2016 Defensive (new asset allocation) Property Infrastructure 36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15% 2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30% Formerly Defensive 20.5% 43% 11.5% 10.5% 8% 6.5% 0% 0% 0% 75% 25% 7.5% -19% 3.5% -1.5% 2% -1.5% 0% 3% 6% -5.3% 5.3% 2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50% Formerly Moderately Defensive 10% 37% 7% 20.5% 16% 9.5% 0% 0% 0% 54% 46% 8% -19% 3% -5.5% 6% -3.5% 0% 3% 8% -4% 4% 2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70% Formerly Balanced 5% 26% 4% 31% 24% 10% 0% 0% 0% 35% 65% 4% -15% 1% -10% 7% -4% 3% 4% 10% -5% 5% 2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85% Formerly Growth 3.5% 12% 1.5% 42.5% 30.5% 10% 0% 0% 0% 17% 83% 0.5% -6% -1.5% -14.5% 6.5% -3% 3% 5% 10% -2% 2% 2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95% Formerly High Growth 0% 0% 0% 50% 40% 10% 0% 0% 0% 0% 100% 1% 0% 0% -17% 2% -2% 3% 5% 8% 5% -5% Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. Shares may also include an allocation to emerging markets depending upon client s circumstances. ** Recommended split between Property and Infrastructure is 40% / 60%. *** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate 100% to Growth.

15 2016 Strategic Asset Allocation compared to Ventura and vmaps This table illustrates the differences between 2016 SAA and Risk Profiles and Ventura and vmaps portfolios. Risk Profile Fixed Interest Australian Fixed Interest Australian Shares Shares* Property / Infrastructure Australian Property / Infrastructure ** Diversified Alternatives*** Total Defensive Assets Total Growth Assets Property Infrastructure 2016 Defensive 36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15% vmaps Defensive 36% 21% 27% 6% 5% 3% 0% 0% 2% 85% 15% vmaps Defensive 0% 9% -8% -1% 1% 1% 0% 0% -2% 0% 0% 2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30% Ventura Conservative 27% 20% 18% 11.5% 10.5% 1% 4% 0% 8% 73% 27% vmaps Conservative 29% 17% 21% 12% 9% 4% 0% 2% 6% 70% 30% Ventura Conservative 1% 4% -3% -2.5% -0.5% 4% -4% 3% -2% -3% 3% vmaps Conservative -1% 7% -6% -3% 1% 1% 0% 1% 0% 0% 0% 2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50% Ventura Diversified 50 13% 17% 16% 21% 20% 1% 3.5% 0% 8.5% 54.5% 45.5% vmaps Balanced 13% 15% 18% 21% 15% 5% 2% 3% 8% 50% 50% Ventura Diversified 50 5% 1% -6% -6% 2% 5% -3.5% 3% -0.5% -4.5% 4.5% vmaps Balanced 5% 3% -8% -6% 7% 1% -2% 0% 0% 0% 0%. 15

16 2016 Strategic Asset Allocation compared to Ventura and vmaps (continued) Risk Profile Fixed Interest Australian Fixed Interest Australian Shares Shares* Property / Infrastructure Australian Property / Infrastructure ** Diversified Alternatives*** Total Defensive Assets Total Defensive Assets Property Infrastructure 2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70% Ventura Growth 70 8% 8.5% 11% 29% 28.5% 1.5% 5% 0% 8.5% 36% 64% vmaps Growth 5% 9% 10% 30% 22% 6% 3% 3% 12% 30% 70% Ventura Growth 70 1% 2.5% -6% -8% 2.5% 4.5% -2% 4% 1.5% -6% 6% vmaps Growth 4% 2% -5% -9% 9% 0% 0% 1% -2% 0% 0% 2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85% Ventura Growth 90 5% 3.5% 3% 34.5% 33.5% 2% 5% 0% 13.5% 25% 75% vmaps High Growth 3% 4% 3% 36% 28% 8% 4% 4% 10% 15% 85% Ventura Growth 90-1% 2.5% -3% -6.5% 3.5% 5% -2% 5% -3.5% -10% 10% vmaps High Growth 1% 2% -3% -8% 9% -1% -1% 1% 0% 0% 0% 2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95% Ventura High Growth % 0% 0% 42% 41.5% 2% 5.5% 0% 7.5% 9% 91% vmaps High Growth Plus 2% 0% 0% 42% 32% 10% 4% 4% 6% 5% 95% Ventura High Growth % 0% 0% -9% 0.5% 6% -2.5% 5% 0.5% -4% 4% vmaps High Growth Plus -1% 0% 0% -9% 10% -2% -1% 1% 2% 0% 0% Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. Shares may also include an allocation to emerging markets depending upon client s circumstances. ** Recommended split between Property and Infrastructure is 40% / 60%. *** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate 100% to Growth. 16

17 2016 Strategic Asset Allocation compared to Lonsec and Zenith This table illustrates the differences between 2016 SAA and Risk Profiles and the Lonsec and Zenith model portfolios. Risk Profile Fixed Interest Australian Fixed Interest Australian Shares Shares* Property / Infrastructure Australian Property / Infrastructure ** Diversified Alternatives*** Total Defensive Assets Total Defensive Assets Property Infrastructure 2016 Defensive 36% 30% 19% 5 % 6% 4% 0% 0% 0% 85% 15% Lonsec Stable 100% % 0% Zenith N/A No equivalent risk Lonsec Stable -74% 30% 19% 5 % 6% 4% 0% 0% 0% Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30% Lonsec Defensive 25% 21.5% 19.5% 8% 8% 4% 0% - 14% 80% 20% Zenith Conservative 20% 50% 7% 7% 3% 0% 0% 13% 70% 30% Lonsec Defensive 3% 2.5% -4.5% 1% 2% 1% 0% 3% -8% - - Zenith Conservative 8% -11% 2% 3% 2% 0% 3% -7% Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50% Lonsec Conservative 10% 21% 19% 14% 15% 6% % 60% 40% Zenith Moderate 15% 37.5% 15% 15% 2% 2% % 52.5% 47.5% Lonsec Conservative 8% -3% -9% 1% 7% 0% 0% 3% -7% - - Zenith Moderate 3% -9.5% 0% 7% 4% -2% 3% -5.5% - -

18 2016 Strategic Asset Allocation compared to Lonsec and Zenith (continued) Risk Profile Fixed Interest Australian Fixed Interest Australian Shares Shares* Property / Infrastructure Australian Property / Infrastructure ** Diversified Alternatives*** Total Defensive Assets Total Defensive Assets Property Infrastructure 2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70% Lonsec Balanced 5% 15% 14% 19% 20% 6% 2% 3% 16% 40% 60% Zenith Balanced 0% 33.5% 22.5% 22.5% 3% 3% % 33.5% 66.5% Lonsec Balanced 4% -4% -9% 2% 11% 0% 1% 1% -6% - - Zenith Balanced 9% -17.5% -1.5% 8.5% 3% 0% 4% -5.5% High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85% Lonsec Growth 2% 8% 7% 26% 28% 7% 2% 3% 17% 20% 80% Zenith Growth 16.75% 30% 30% 4% 4% 0% 15.25% 16.75% 83.25% Lonsec Growth 2% -2% -7% 2% 9% 0% 1% 2% -7% - - Zenith Growth 4% -10.8% -2% 7% 3% -1% 5% -5.3% High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95% Lonsec High Growth 0% % 36% 7% 2% 3% 18% 0% 100% Zenith High Growth 0% 0% 37.5% 37.5% 5% 5% 0% 15% 0% 100% Lonsec High Growth 1% 0% 0% -1% 6% 1% 1% 2% -10% - - Zenith High Growth 1% 0% -4.5% 4.5% 3% -2% 5% -7% - - Numbers highlighted indicate where the 2016 SAA is less than the Lonsec and Zenith allocations. * share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. Shares may also include an allocation to emerging markets depending upon client s circumstances. ** Recommended split between Property and Infrastructure is 40% / 60%. *** Diversified Alternatives have been classified as both Defensive and Growth assets at a ratio of 50% / 50%. Compass output will however have only a one-line item and allocate 100% to Growth. Lonsec 1. Allocate Alternatives to both the Defensive and Growth asset classes at various ratios. Total Defensive and Growth altered accordingly. 2. Australian Property also include Direct Property. 2% in Defensive, 3% in Conservative to High Growth) Zenith 1. SAA and risk s refer to the Elite Blend model portfolios. 2. Alternatives also include multi-asset strategies

19 2016 Risk Profile Questionnaire Our 2016 Risk Profile Questionnaire is much simpler to use with your clients. It helps you to understand their attitude to investment risk and develop an investment strategy to reach their financial goals and objectives. In developing our new Risk Profile Questionnaire (RPQ), we used Ibbotson s risk tolerance questionnaire as the basis as it was developed by a team of behavioural science experts including Daniel Kahneman. Daniel Kahneham is a psychologist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences. 19

20 Improvements and enhancements The new questionnaire consists of eight questions and is eight pages in total, four pages shorter than our current version. Graphs and tables are used throughout to provide visual guides to the questions. The educational component has been removed, but information has been updated and is available on Compass and in the Advice and Technical Content Library. A SMSF/Entity declaration has been added allowing you to use one document for both the individual clients and the SMSF if appropriate. The RPQ will be available as a pdf and word version and will be coded into the Compass. Considerations As the questionnaire only relates to risk tolerance it may result in clients being rated more conservatively than our previous RPQ. However there is still the ability to vary the where it is agreed between the client and the adviser (and it is in the client s best interests). Additional questions have been added to the Client Data Form (CDF) to ensure that advisers are prompted to ask clients questions about their previous investment experience and capacity for risk. Further information Refer to the appendices to learn more about the 2016 Strategic Asset Allocation and Risk Profiles. If you d like to know about how this affects your clients, then read our 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. It also provides information on your next steps, and guidance on how to stay on track to meet your compliance obligations. 20