Risk Tolerance from three perspectives – an introduction to psychometric measurement, the five most common myths and advisers' misjudgements.

Psychometrics 101

The importance of using a psychometric test to measure personal financial risk tolerance is becoming widely accepted. But what is psychometrics? In brief, it is a scientific discipline, a blend of psychology and statistics, for psychological measurement, which includes the measurement of knowledge, abilities, attitudes, and personality traits. The field is primarily concerned with the construction and validation of measurement instruments. A good overview of what is required to construct a psychological test can be found here. Psychometric standards focus on validity and reliability - a valid test being one that measures what you think you are measuring and a reliable test being one that measures consistently. For readers interested in exploring further, a brief video on validity and reliability can be found here.

Risk Tolerance Myths

Discussions about risk tolerance often include more fiction than fact. Cobus du Plessis from the Institute of Behavioural Finance, our South African business partner, succinctly exposes the five most common myths about risk tolerance click here.

Advisors Badly Misjudge Risk Tolerance

Judging risk tolerance accurately is essential for both advisors and their clients. Although advisers can provide information and change a client's perception of risk, once a client has the facts, advisers can't alter how a client feels about the pros and cons of risk vs. reward. Click for full article.

Spanish Hard Copy Questionnaire

We now have a Spanish version of our hard copy questionnaire for US advisers to use with clients who would prefer to do the questionnaire in Spanish.

Note that only the hard copy questionnaire is available in Spanish, advisers will need to transfer the answers online to a US English online questionnaire to generate a US English report, a Spanish report is not available. If you are interested in using the Spanish hard copy questionnaire, please contact nicki.potts@finametrica.com, applicable fee applies.

For some great information and free reports, visit us at www.riskprofiling.com.

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