That advisers should know a client’s tolerance for risk is not a revolutionary idea. Indeed, it’s a requirement of the job — both in the U.S. and abroad. Yet a recent survey of the global landscape for best practices in risk profiling, conducted by Canadian financial planning software provider PlanPlus, reveals a disturbing lack of quality risk tolerance questionnaires (RTQ) and support tools for advisers.
This appears to be driven in part by regulators articulating the principle of knowing the client’s risk tolerance, but providing little guidance on how to do it right. And to a large extent, the problem stems from regulators, academics and advisers themselves not agreeing on exactly what factors of a client’s risk profile should be evaluated.
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