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Hewison Insights

Managing portfolios to objectives or risk?

John Hewison
Founder and Director
27 Jan 2015

Modern investment theory is broadly based on asset allocation. That is, the percentage exposure of a client’s portfolio to the asset sectors of cash, fixed and variable interest (debt securities), property and equity. 

For decades, financial planners have based clients’ investment portfolio recommendations using an individual client’s risk profile as the basis for determining asset allocation. Of course, the real story behind risk profiling is so that the firm has some mechanism for controlling the process and justifying their asset allocation recommendations.

Now, the new paradigm emerging in the financial planning community is “objective based” investment. That is, to determine the client’s asset allocation based on the achievement of their investment objectives.

At Hewison Private Wealth (HPW), we have never supported the notion of risk profiling. In our view, basing an investment strategy on answers to a series of questions that are designed to test the client’s attitudes to investment risk is not a good strategy. Since when does risk equate to performance or desired outcomes?

It is ludicrous to suggest that someone who is completely inexperienced in investment matters can somehow self-determine how they will react to risk situations. Even more absurd is the design of strategy which is solely based on this mechanism without any reference to the individual client’s desired financial outcomes and time horizons.

Our view is that the skill of a professional planner is to assess the desired financial outcomes for each client and then design an appropriate strategy that is most likely to achieve those outcomes, with the least amount of risk exposure. It is then the planner’s role to actively manage the strategy and to make sure that the client fully understands the progress and the risks involved.

The current shift of focus to objective-based-advice is because the failures of risk profiling have been exposed through the GFC and in reaction to the FoFA review. As a result, the industry is looking for a new hook upon which to hang its hat.

HPW has been using objective based advice for more than 25 years and it takes a lot more than shoving clients into a portfolio of “objective based” investment funds and hoping for the best.  It takes hard work to constantly monitor, re-balance, manage cash flows and manage client expectations.

Basing financial advice on product selection and performance has never worked and won’t work in the future. As for risk profiling…I challenge you to show me anyone who is happy to lose money.


Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.