Goals-Based Planning: The Trade-off Between Risk Tolerance and Risk Required
The FinaMetrica Risk Profiling system comprises:
A psychometric test of personal financial risk tolerance.
Educational materials to assist advisers in managing a client's risk and
return expectations in the context of the client's specific risk tolerance.
One methodology for incorporating test results into the financial
FinaMetrica may be used individually or collectively as an educational tool, a marketing and sales tool and a tool for making trade-off decisions.
Resolving Conflicting Goals
The process of personal financial
planning invariably involves helping your client
manage one or more conflicting alternatives through
trade-off decisions that best meet their present and
future wants and needs in their current and
Effective trade-off decisions can only be made when the elements of
the trade-off have been separated, and can be clearly understood and
compared. A key trade-off decision for your client is between their financial risk tolerance and the financial risk required to achieve goals.
When exploring investment strategy alternatives, the financial risk
associated with the return required to achieve your client's goals
often exceeds the level of risk which your client would prefer.
FinaMetrica provides a scientifically validated technique for
assessing financial risk tolerance and an easily understood
methodology for incorporating the assessment into the financial
Specifically, FinaMetrica provides an 'apples-to-apples' comparison
between risk tolerance and investment risk, enabling you to help
your client make properly informed risk/return trade-off decisions,
because the elements are separate, understandable and comparable.
Importantly, if in order to achieve their goals, your client decides
to take more risk than they would normally choose, the FinaMetrica
methodology makes this decision clear and explicit – and your client
signs-off on it.
FinaMetrica enables you to obtain your client's properly informed
commitment to the risk/return trade-offs in their plan ... in a
jargon-free, plain-English process that clients find enjoyable and
In the past, risk profiling has largely been seen as a necessary evil – just another part of the fact-finding drudgery which neither client nor adviser enjoyed; something to be disposed of as fast as compliance would allow. Some advisers became dissatisfied with this, sensing that it was questionable but not knowing how it could be done better.
The FinaMetrica system can be seen as simply a robust, defensible technique for dealing with that necessary evil … but this would mean missing out on most of the unique benefits which FinaMetrica delivers.
FinaMetrica users have built successful
marketing campaigns on the offer of an obviously
more robust and meaningful process for understanding
clients’ risk tolerance than their competitors.
The obvious quality of the FinaMetrica system builds
trust. The interviewing techniques outlined in the
FinaMetrica training materials when applied to the
information-rich FinaMetrica risk profile report
lead to an in-depth understanding of and empathy
Experienced users report that they invariably
discover valuable information about the client which
otherwise they would not have. They find that
FinaMetrica accelerates the relationship-building
process generally, and particularly with couples,
where risk tolerance differences are common.
With goals based planning, clients
arrive at an agreed plan in a manner where any
trade-offs have been clearly identified. As a result,
clients are able to give properly informed
commitment to the agreed plan. They better understand and are
more committed to the
plan and have much greater ownership of it.
Properly informed commitment reduces the
incidence of client complaints. The plain-English,
scientifically-backed, fully transparent and
auditable FinaMetrica process is
defensible, in the unlikely event that defence is
FinaMetrica users see value added to
their bottom line in a market where business buyers
are seeking process-driven practices with minimal
potential for contingent liabilities.
For a complete list of benefits for advisers and others – see FinaMetrica's Benefits
For a complete description of the FinaMetrica psychometric test –
see FinaMetrica Technical Manual.
Trial the FinaMetrica System Free for 30 Days
The FinaMetrica Risk Profiling System
Professional Advisers Obligations in Relation to Risk Profiling
Psychometric Standards for Risk Tolerance Testing
Frequently Asked Questions