Countering Client Anxiety With Risk Scores Rooted in Reality
Market volatility is par for the course in investing—yet it can still catch your clients off guard. When markets dip or volatility prevails, investors often let their emotions rule, sparking feelings of anxiety (and even panic). This can lead to a premature sell-off, which can drastically reduce their returns in the long run. Case in […]
Why Risk Preference and Risk Capacity Need to Be Scored Separately
Risk tolerance questionnaires have traditionally consisted of questions that produce one score centered around risk preference or attitude, which advisors then use to create portfolios or record the rationale for how they match clients to specific firm models. This can often create misalignment as it may not expose the entire reality of an individual’s overall […]
Why Fact-Based Multidimensional Risk Capacity Is a Superior Approach for Financial Advisors to Profile Their Clients
Advisors have traditionally used risk tolerance questionnaires and basic timelines as the basis for portfolio recommendations. Unfortunately, these practices are riddled with flaws. As outlined below, including and prioritizing risk capacity offers a far superior method in advising clients with their investments. The Pitfalls of Risk Tolerance Questionnaires Risk tolerance, or preference, is based on […]
How Today’s Portfolio Risk Assessment Tools Rely On AI and Big Data To Better Serve Their Clients
Traditionally, advisors were only able to capture inputs directly from their clients. This information was often very subjective and relied heavily on the clients’ feelings about investing and risk. Fact-based questions were often limited to a small set of questions, such as time horizon and availability of assets. Even still, these “facts” were vulnerable to […]