Risk scores
Client risk scores
Interactive Advisors assigns all Interactive Advisors clients a personal client risk score on a scale of one to five based on your responses to a risk questionnaire. Through this risk questionnaire, Interactive Advisors aims to reliably assess the following three key areas:
- Investment objectives measure your goals in order to determine the extent of investment risk needed to achieve them.
- Risk tolerance measures your willingness to take investment risk and your ability to withstand swings in the value of your investments.
- Financial capacity measures your ability to take investment risk based on your financial situation.
Cautious
Growth
Growth plus
Aggressive
Speculative
Portfolio risk scores
Initially before the launch of a portfolio on the platform and then at the beginning of every quarter thereafter, Interactive Advisors assigns each portfolio a risk score by combining:
Strategy review
Strategy review
The Investment Management team reviews for classification and adherence to previously stated objectives the portfolio managers’ description of the strategy and their answers to a questionnaire.
Risk metrics
Risk metrics
The Investment Management team analyzes quantitative measures, based on the accounts historical holding and performance. Holding characteristics, such as concentration in individual securities and sectors, leverage and margin requirements and return and risk characteristics, such as volatility, VaR, drawdowns are used.
Portfolio rules
Portfolio rules
Interactive Advisors has established and enforces a set of trading rules that determine which trades are allowed to be replicated in client accounts’ based on their appropriateness for the risk level of the portfolio. For instance, certain types of trades (like short positions or leverage) are only appropriate for certain risk scores.
Client risk score >= Portfolio risk score
Your client risk score assists Interactive Advisors in determining which portfolios you may invest in. You may only invest in portfolios that have a risk score less than or equal to your own client risk score.