The descriptors need to have the following characteristics:
- Each risk category description should be able to be understood on its own, without reference to any other risk category description. This means that words like 'more risk' or 'less risk' should not be used. Our standard risk descriptions explain the level that is expected for that risk profile without referring or comparing themselves to any other risk profile.
- Should explain the risk that is applicable to the profile and provide a means of checking that the risk level is appropriate for the investor. The wording includes a description of the type of risk that might be encountered for someone with that profile, as well as example investments for comparison.
- Be clearly different between categories. To ensure a set of clearly different categories, we have produced 5 risk descriptions. When using words to describe risk it becomes difficult and rather spurious to distinguish between 10 levels of risk. The numerical and category name provides the risk level on a scale of 1 to 10 and the descriptions allow this to be communicated to the clients.
- Be consistent with the asset allocations being suggested. The EV descriptions are designed to be used with the EV risk questionnaire and asset allocations and as a result, they are all consistent. For example, the reference to example assets within a risk category corresponds to the allocation of assets for the same risk category.