Risk tolerance is how emotionally comfortable a person is with taking financial risk. For example, how much a person is willing for their portfolio to diminish for a chance to make bigger returns. It is psychological and is best measured with a psychometric tool. By knowing how comfortable a client is with investment ups and downs, advisors can make sure their clients don’t panic, or worse, blame the advisor when a risk is realised.
Risk profiling is a process for finding the optimal level of investment risk for your client by balancing their risk required, risk capacity and their individual risk tolerance.
Have your clients complete the risk tolerance profile in their own time. If it’s a couple, have them complete it individually (it’s remarkable how different partners are).
Make the very first conversation a chance to demonstrate more value and win trust faster by showing how your services meet your client's risk tolerance profile. Financial advisors use our Risk Tolerance Toolkit™ to gain a deeper understanding of the individual client, without creating more work for you. Explore sample risk tolerance profiles.
The FinaMetrica Risk Tolerance Toolkit™ lets you navigate expectations and portfolios you know clients will be happy with. It also lets you navigate expectations and differences between couples — long before there’s ever a problem. You can show that your recommendations are right for them. Explore how we map risk tolerance scores to portfolios.
The markets may drop but your clients' confidence won't. Financial advisors return to the FinaMetrica Risk Tolerance Toolkit™ to help manage expectations when portfolios change. It means clients make fewer panicked calls and are confident in your advice. Explore our risk and return reports.
Weddings and divorces, dreams and disasters: unforeseen life events can fracture the once strong foundations. Financial advisors return to the FinaMetrica Risk Tolerance Toolkit™ to ensure that when circumstances change, your client’s trust in your advice doesn’t.
Create portfolios with the longevity to see clients through the ups and downs of life and changes in the market conditions.
Risk tolerance is a psychological trait and as such is best measured using a psychometric tool that ensure its validity and reliability.
The FinaMetrica risk tolerance profile meets or exceeds international standards for assessments of its kind with a reliability of 0.9 out of 1. The psychometric integrity of a risk tolerance profile ensures accurate mapping of risk tolerance score to investment portfolios
There is often a gap between the level of risk which your client would normally choose to take, their risk tolerance, and the risk associated with the return required to achieve their goals, their risk required. To identify that such a gap exists and then assist your client to resolve it, requires that you can make an apples-to-apples comparison between risk tolerance and investment risk. Assuming that the portfolio is well diversified, the percentage of Growth Assets is a suitable parameter to enable that comparison.
Most clients start with unrealistic expectations about risk and return. Unrealistic expectations can quickly become unfulfilled expectations and unfulfilled expectations tend to cause grief for all concerned. Our Risk and Return reports provide clients with plain-English details of their risk and return expectations based on their answers to the risk tolerance profile. They link analysis of our risk tolerance profile database to 40 plus years of month-by-month back-testing of historical portfolio performance. At a glance, you can show clients how representative sample portfolios would have performed against their risk and return expectations.