Psychometric Standards for Risk Tolerance Testing Psychometrics, a blend of psychology and statistics, is the science of psychological testing. It is an established discipline which provides standards for test construction and against which tests can be evaluated for validity and reliability. Advisers face several key issues when considering how to best develop an understanding of the risk tolerance of their clients.

• What is risk tolerance?
• Why is it important that advisers understand the risk tolerance of clients?
• How should advisers go about obtaining an understanding of their client's risk tolerance?
• What should advisers look for in a risk tolerance test?

In choosing a test of risk tolerance to use in a financial planning business, many questions need to be asked. How is risk tolerance defined in the test? How has the test been trialled? How and when is the test to be used?

The paper "Some Guidelines For Financial Planners In Measuring And Advising Clients About Risk Tolerance" by Victor J Callan, Professor of Management, and Malcolm Johnson, Lecturer in Management, at the University of Queensland's Graduate School of Management, outlines for advisers the nature of risk tolerance, and identifies some key issues in choosing a valid and reliable test instrument. This paper was published in the August 2002 Journal of Personal Finance.

The University of New South Wales' Applied Psychology Unit confirms that FinaMetrica's risk tolerance test meets or exceeds the internationally accepted standards for a psychometric tool of this kind.

View Some Guidelines For Financial Planners
View UNSW Certificate

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