The assets to which a Suitable Risk Level apply belong to a 'financial relationship'. The financial relationship determines not necessarily who owns the assets, but the beneficial owners of them – who are the assets for?
Where a couple beneficially owns a given set of assets, the individual profiles should be combined by mutual agreement. For example, say within a couple one partner had a high Suitable Risk Level and the other a low, they may agree to settle upon a medium one for their joint assets, assuming this was within the bounds of acceptability of each of them.
For a suitability system to function with a clear understanding of the set of assets and liabilities to be included as being ‘suitable’, and which beneficial owner or set of beneficial owners this set of assets is suitable for requires clear answers to three questions:
- What is the set of investible assets for which suitability is being defined? I.e. to what set of assets will a Suitable Risk Level be applied?
- To whom do these assets belong? I.e. Whose Risk Tolerance (and other Financial Personality measures) should be used to arrive at the Suitable Risk Level?
- What financial circumstances are relevant in determining suitability? I.e. Which non-investible assets, liabilities, cash flows, goals, and time horizons should be taken into consideration when determining the Suitable Risk Level?
Each individual investor may belong to multiple financial relationships. For example, a couple may have separate ‘his’, ‘hers’, ‘joint’ and ‘trust for the children’ financial relationships. Each of these should have its own assessment of Risk Capacity and Suitable Risk Level. However, all assets and liabilities should belong to only a single financial relationship.