What is the purpose of a Risk Disclosure Statement in investment management?

The purpose of a Risk Disclosure Statement is to disclose different risks associated with investment undertakings. This statement aims to inform investors about the various risks that could impact their investment performance, thereby helping them make educated decisions regarding their investment strategies. By elucidating risks—such as market risk, credit risk, liquidity risk, and others—investors can better understand the potential downsides of their investment choices.

This information is critical as it promotes transparency in investment management, allowing investors to evaluate their risk tolerance and align it with their investment goals. It is an essential tool for risk management, ensuring that investors are aware of the uncertainties involved prior to committing their capital. While other aspects of investment management, such as benefits or regulatory compliance, are important, the primary function of the Risk Disclosure Statement is specifically to communicate the risks inherent in the investment products.