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Clients Request Financial Risk Tolerance Assessment Software
August 11, 2016
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Risk Tolerance Assessment Software is Better Than Your Questionnaire

For years, it was standard practice amongst financial advisors to provide clients with a risk tolerance assessment questionnaire. Often, it was a simple survey ranging from 6 to 12 questions, and the results were basic. Clients were ranked according to the level of risk they were willing to take, typically being described as “conservative,” “moderate,” or “aggressive.” These vague terms hardly provided advisors with the concrete information that they needed to move forward, and they certainly didn’t allow people to feel confident about the risk management of their finances. So, financial professionals are turning to a better option: risk tolerance assessment software.

What are the Weaknesses of the Risk Assessment Questionnaire?

  • Results are inconsistent. The majority of clients who take a risk assessment questionnaire will receive a “moderate” risk level. First of all, this is a difficult term to define in relation to a person’s ability and motivation to take risk with their assets. Secondly, a moderate risk level may mean something different from one advisor (or client!) to the next. It does not offer clear direction as to what the client needs done with their portfolio, and it can cause more confusion than clarity.
  • The questionnaire places too much emphasis on the personality of the investor, without considering the investor’s true ability to take risk. Most software solutions are just digitized questionnaires, still falling prey to this same failure.  There is an important, non-linear relationship that takes place between ability and willingness. For example, if a person has a high ability to take risk, their willingness to take risk  is very important. However, if they have a reduced ability to take risk, then their willingness may not matter as much.

What are the Benefits of the Risk Assessment Software? 

  • Tolerisk® uses a scientific approach to risk assessment. This scientific process quantifies the degree of contribution for every major assumption, ultimately helping advisors understand what is driving the risk tolerance of each client.
  • It helps both clients and advisors understand the right current level of risk to take, and how that risk level may evolve. The assessment can be revisited, as most people’s risk tolerance levels will evolve with time.
  • The detailed report helps both parties understand the impact of risk selection on financial longevity. The report is designed to provide in-depth information as to a person’s individual risk assessment level. While it’s valuable to the advisor, it’s also simple enough for the investor to read and understand. Together, the advisor and the client can utilize the Tolerisk® report in order to determine a long-term plan for financial success.

While financial advisors have long felt that the risk assessment questionnaire was lacking, they haven’t had other options available. Now, with Tolerisk®, they can receive expert risk assessment reports that have been personalized to fit the individual needs of their clients at that specific moment in time. Now, their clients are more confident and they can make better decisions as an advisor when it comes to managing their portfolio. Tolerisk® is the only risk assessment software that uses a scientific approach to risk tolerance, incorporating the client’s willingness and ability to take investment risk

To find out more information about this innovative software program, contact us today.

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