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Risk Tolerance Assessment Disconnect: Helping Advisors Strengthen Communication with Clients

Managing their nest egg effectively is a top priority for many people, but it can be a daunting task. For many it falls into the same category as exercising, dieting, or cleaning out the garage. The thought of making investment decisions can feel paralyzing, which is why many people have come to rely on financial advisors. One of the biggest decisions for which investors desperately need assistance from their advisors is selecting the right risk directive for their portfolios…..not only now….but as their circumstances evolve.

Unfortunately, most advisors are still using simple risk tolerance quizzes, which were designed primarily as a basic compliance checklist item for advisors and not a way to tailor decisions for each client. Risk tolerance is a cumbersome topic even for seasoned professionals, and according to an article on CNBC, making this topic relatable to the average investor is even more challenging.

Why Does the Risk Tolerance Assessment Disconnect Exist?

  • Many clients do not appreciate the impact of a poorly chosen risk directive and advisors often have a difficult time articulating the importance.
  • Many advisors mistakenly rely on mediocre risk tolerance assessment questionnaires that produce generic results that don’t incorporate their expected cash-flows.
  • Often clients may guess the answers to questions advisors ask reducing the reliability to the risk tolerance assessment results.

How Can Advisors Overcome it?

Advisors can implement educational tools to help their clients understand their risk tolerance and make better portfolio risk decisions. The best risk tolerance tools enable the advisor to incorporate the client’s personality as well as their cash-flows in the analysis. It should also provide an analysis of how realistic the assumptions provided by the clients are, so both advisor and client can be confident in the results and recommendations.

What Tolerisk® Can Do to Help

Tolerisk® is the tool that financial advisors need in order to completely and accurately explain risk tolerance to their clients. With Tolerisk®, financial advisors can conduct a scientific assessment of both the right level of risk for their client as well as the reasonableness of their assumptions. By taking into account cash-flows, mortality probability, personality, inflation, and market risks, Tolerisk® is able to compile comprehensive results that are completely customized to the individual client. Most importantly, advisors are provided with an easy-to-read report that allows them to best explain the risk tolerance assessment results to their clients.

Tolerisk® is the only risk tolerance assessment tool that provides advisors with a scientific way to determine both the willingness and ability of their client to take investment risk. To find out more about Tolerisk® and to see how it can help you make risk tolerance understandable and relatable, contact us today.

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