The FinaMetrica Risk Profiling System

The FinaMetrica risk profiling system is a low-cost, quick and user-friendly way to gain a more insightful understanding (in plain English) of your clients' financial risk tolerance - attitudes, values, motivations, preferences and experiences - and to meet common and statutory law know-the-client and duty-of-care obligations. FinaMetrica's focus is on the psychological factors relevant to financial decision-making in terms that are meaningful to individuals and their advisers. Developed and tested in Australia over 4 years with the assistance of the University of New South Wales’ Applied Psychology Unit, the FinaMetrica system has gained international recognition as world’s best practice since its Australian launch in 1998. The FinaMetrica system offers previously unattainable levels of validity, reliability and accuracy in risk tolerance assessment.

What Does a Scientific Risk Profiler Actually Do?

A scientific risk profiler mirrors what many advisers aim to do, either intuitively or by using industry-standard questionnaires, namely

• form a view as to the client's risk tolerance by conducting a question-and-answer discussion about the client's attitudes, values, preferences and experiences in matters involving financial risk,
• present the client with a written summary of this view and, if required, amend the summary to reflect the client's feedback (in order to obtain the client's confirmation that the adviser's understanding is accurate and that the adviser may rely on it.)
• consciously or sub-consciously, make a norms-referenced rating of the client's risk tolerance using as norms those derived from the adviser's experience, viz "This client is Low/High/Average, etc. compared to my other clients."

The FinaMetrica system follows that process with five additional strengths to ensure validity and reliability:

• The questions cover a broader range of topics than would typically be covered by an adviser.
• The questions are in jargon-free, plain English that has been tested for understandability and answerability, and hence explanation/clarification by the adviser is unnecessary.
• Because the questions are asked in a controlled manner without the adviser being involved, interaction with the adviser cannot unintentionally influence the outcome.
• The summary is produced automatically in a structured format by way of an information-rich plain-English risk profile report.
• The norms-referenced rating is calculated statistically with a known, high level of accuracy against an adult population sample.

Importantly, scientific risk profiling does not replace discussion between adviser and client. Rather, the completed questionnaire and the risk profile report become inputs to that discussion. This approach enables an in-depth understanding to be reached far more accurately and quickly than by discussion alone. By clearly articulating the client’s risk tolerance in terms that are meaningful to adviser and client the FinaMetrica system empowers both adviser and client:

• clients are better able to give the adviser clear instructions as to the level of risk they are willing to accept, and
• advisers are better able to explain and illustrate the practicalities of financial alternatives in the context of the client’s needs and wants.

Trial the FinaMetrica System Free for 30 Days
Goals Based Planning: The Trade-off Between Risk Tolerance and Risk Required
Professional Advisers Obligations in Relation to Risk Profiling
Psychometric Standards for Risk Tolerance Testing
Our Benefits
Frequently Asked Questions