What is the purpose of the investor profile?
It is nothing less than the cornerstone of your advisor’s work: the better they know you, the better they can advise you!
To make appropriate investment recommendations, your advisor should know you well. And for good reason: how can you give relevant advice to someone you don’t know?
Drawing up your investor profile is an essential part of the job. Basically, it involves determining:
- Your personal and financial situation
- Your investment objectives
- Your risk tolerance level
- Your investment knowledge
- Your investment horizon - the length of time you are willing to invest.
To do this, your advisor will inquire about your family situation, your employment, your career goals, your dreams and aspirations, your assets and liabilities, your lifestyle, your legal obligations (alimony, for example), your potential death, disability and critical illness insurance, the existence of health problems, how you envision your retirement, your successional goals, and so on.
Your advisor will check your knowledge of investment and your interest in this subject. They will be able to tailor the level of information they will give you, knowing whether you are a novice, advanced or a connoisseur. In some cases, they may even help you identify some common misperceptions. That’s right! Some people overestimate their knowledge while others underestimate it, for example.
Your advisor will also need to assess your risk tolerance. Are you able to accept a loss of your savings for a higher potential return or do you prefer to grow your assets in conservative investments? Your risk tolerance is directly related to your personality, your emotions with regards to money, your investment horizon and your overall financial situation.
In short, you’ll be having a lot of conversations with your advisor so that he or she can do the job right. This data collection may seem intrusive, but it’s a sign of professionalism and a tool designed to protect you: advisors must always ensure that the products they recommend are suitable for their client. And who knows, you may learn something about yourself through this exercise!
Since nothing in life is set in stone, it is important to regularly review your investment profile. A new job with better pay, the arrival of a child, an unexpected inheritance, a divorce, or approaching retirement are all situations that require a review of your investment strategy.
But that’s not all: your advisor must also establish your investor profile each time you want to make an investment or purchase an insurance product with an investment component.
If spouses wish to invest together, an investor profile must be prepared for each of them. If they wish to share an account and make joint investments, they must have the same risk tolerance for the same investment objective.