Risk Profiling
A broader approach to risk profiling, combining asset allocation, investment objectives and volatility measures to support clearer suitability decisions.
Why Aristo Capital Takes a Different Approach to Risk Profiling
At Aristo Capital, we recognise that advisers need clarity and a robust framework when assessing portfolios against client risk profiles.
Standard deviation is familiar, but it has material drawbacks when treated as the primary measure of risk. That is why we use a broader approach to assessing portfolio risk characteristics
The Limitations of Standard Deviation in Risk Profiling
Standard deviation is commonly used in attitude-to-risk frameworks to describe how much returns have fluctuated. But it is highly dependent on the period selected: a portfolio can look meaningfully more or less volatile over one year than over ten. Results also vary because risk tools use different data sources and calculation methods, so the same strategy can be placed in different risk bands.
Standard deviation is also backward-looking and purely statistical: it does not explain what drove volatility, how a portfolio is constructed, or how it is meant to be used within a client plan.
In certain environments, bond-heavy portfolios can behave in ways clients may not expect, while equity-led portfolios can appear temporarily calm. The result can be risk labels that obscure the portfolio’s purpose and the client’s intentions.
Our Philosophy: Aligning Portfolios with Purpose and Allocation
Rather than anchoring portfolios to a single volatility score, we start with asset allocation and the investment objective.
Over the long term, we consider the split between growth assets (e.g., equities) and defensive assets (e.g., bonds and cash) to be a more informative indicator of portfolio behaviour than a standalone volatility metric. Our portfolio labels reflect equity exposure, giving advisers a clear way to describe positioning across market conditions.
Each Aristo Capital portfolio has a defined role, capital growth, income, or a balance of both. We believe suitability assessments are better informed when advisers consider a client’s intended use of funds alongside the portfolio’s objective and asset allocation, rather than relying on standard deviation alone.
Allocation
What This Means for Advisers and Their Clients
By prioritising asset allocation and investment objectives alongside volatility measures, we aim to provide portfolios that are easier to explain and can be assessed more clearly against client needs.
This does not remove investment risk as values can fall as well as rise, but it can set clearer expectations for how each portfolio is intended to behave within a broader financial plan.
To discuss our approach, or the role our portfolios may play within your advice process, please contact the Aristo Capital team.
