Good advisory businesses build their professionalism, protect themselves and ensure their businesses meet best practices by rigorously seeking to apply five proofs to their client advice process.

1.    Prove they know their client, their current situation, aspirations, risk tolerance and risk capacity.
2.    Prove they have explored the range of alternative plans and strategies with the client.
3.    Prove they know the products that they have selected to implement the client's strategy.
4.    Prove that they have explained the risks in the strategy and the products to the client, particularly establishing performance and downside expectations.
5.    Prove they received the client's informed consent to accept those risks in pursuit of their goals.

1. Prove you know the client, their circumstances, needs, aspirations, risk tolerance and risk capacity.

You need to have a good understanding of client assets and liabilities. This includes a good understanding of present and future cash flow. Best practice tells us that you should be able to illustrate this to clients with words, numbers and pictures.

Critically important here is the client's risk capacity. You must determine how much your client and any partner could afford to lose without messing up their present and future life plans. This usually means stress testing the client's balance sheet, particularly their investments and then reviewing future spending to assess when the client will run out of money.

You need to have a robust understanding of your clients' financial risk tolerance so that you can assist them take that into account in their financial plan. A useful definition of risk tolerance is "the level of risk an individual would accept in their financial affairs if goal achievement was not an issue." For couples acting jointly, the risk tolerance of each is relevant.

This approach is quite contrary to some risk profiling or "portfolio picker" tools, which are often no more than a few questions designed to meet regulatory obligations with a minimum of fuss and generate an investment recommendation.

Their outcome conflates risk required, risk tolerance and risk capacity into a score which has the same credibility as astrology.

More often than not, couples are assessed as one entity, merging any differences they have into one without any opportunity for advisory and client exploration. The score then converts to an investor description such as "you are a conservative investor who appreciates capital security and a steady and reliable income" and suggests a portfolio mix to do so. Consequently the risk is that the advice ignores personal circumstances, lifestyle needs, longevity and emotional needs.

Because this is so obviously nonsense, many advisors undertake such a process just to make their files look tidy. Often they then ignore the outcome altogether. The whole empty exercise becomes a mere lip service to good practice. This often leads to advisor-centric advice where the risk tolerance of the advisor is projected on to the client. Professional advisors usually manage to avoid this problem and get the right portfolio for the client but inexperienced or poorly trained ones often get this horribly wrong. The current dissatisfaction of many clients with their portfolios is testimony to this failure. It is not unreasonable for clients to be unhappy but they should not be overly surprised by the current state of the markets. Professional advisors explain downside risk and link it to their client's risk tolerance.