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Risk Tolerance Assessment Results: Let’s Be Honest

Risk Tolerance Assessment Results: Let’s Be Honest

Risk tolerance can vary quite a bit from one person to the next. In fact, it can even vary for the same person as their circumstances evolve. For many, it’s rooted in their chronological ability to take risk. In other words, the further out in the future they are going to be using their money, the greater their ability to weather the proverbial storms that investment markets may experience. For other investors, the bigger constraint might be their personality. Most people have some degree of emotional tendency when it comes to bearing risk. So, when markets decline, at some point their discomfort can lead them to make an emotional mistake… selling after the market has declined because they just can’t take the rollercoaster any longer.

Honestly, Let’s Talk About Risk Tolerance

Advisors often confess that when it comes to answering questions, clients sometimes say what they think they should rather than how they feel. In a personality profile this can lead to unrealistic results or at the very least, inconsistent answers. When it comes to questions about cash-flows….well sometimes even with the best intentions, they just simply guess because they don’t really know. Both of these situations can present challenges for advisors who need to be able to rely on the information the client provides. Simply ignoring readily available information isn’t really a viable option, especially for an advisor in a fiduciary capacity.

According to an article published on, advisors should not rely on how clients describe their willingness to accept risk, but instead should analyze their actual ability to endure risk. They cite a few key things to keep in mind when you conduct your risk tolerance assessment.

  • Time horizon is not necessarily retirement – be sure to incorporate pre-retirement capital expenditures
  • Even aggressive personalities may need to have reduced risk in their portfolios to be consistent with the time horizon of their usage
  • Don’t try to convince conservative investors to take more risk – if their willingness to accept risk is the bigger constraint, it should be respected

How Can Tolerisk® Help Advisors Get the Truth

Tolerisk® not only allows you to incorporate cash-flows into your risk tolerance assessment (along with a personality assessment), but it also validates the assumptions the client presents. So, if your client isn’t being realistic or consistent, you can allow Tolerisk® to identify the situation and advise accordingly. This helps your client make better decisions and allows you to uphold your fiduciary responsibilities.

With Tolerisk®, you get a comprehensive analysis of the individual, and you get so much more than the vague, all-too-common, “moderate” risk level assessment at the end. Rather, you and your clients get a valuable report filled with data and actionable information regarding their individual risk tolerance and their probability of outliving their money.

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.