Rethinking Risk Tolerance For Retiring Clients
Despite being a requirement for FINRA-registered brokers and insurance agents, and a matter of fiduciary protection for registered investment advisors, most financial advisors today give short shrift to risk tolerance questionnaires. But does all this really mean that risk tolerance questionnaires are universally worthless, and that there’s no value to trying to measure a client’s risk tolerance by any means? Absolutely not! Instead, what’s necessary is to delve deeper on both fronts. This session will explore in greater depth exactly what risk tolerance is and what you’re trying to measure, and to consider what’s required to truly design a quality risk tolerance questionnaire or to properly assess risk tolerance for clients.
- Explain the new risk profile paradigm and define the three risk components of the new paradigm.
- Be able to distinguish between risk capacity and risk tolerance and evaluate how the new risk profile utilizes both of these components.
- Describe how risk perception changes and list the common mental heuristics associated with risk perception.
- Define the two risk attitude approaches. Explain the pros and cons of each approach.
Meet the speaker
Chief Financial Planning Nerd, Kitces.com