DALLAS - Most clients enter a financial planner’s office with high expectations so it’s important to discuss their views on risk at an early stage in the relationship.

Deena Katz, an associate professor at Texas Tech University’s Department of Personal Financial Planning and founder of wealth management firm Evensky & Katz, outlines two scenarios during a session at the Women Advisors Forum in Dallas on Thursday. Clients either assume that the financial planner can deliver better returns on investments than they could achieve; or they value their own investing acumen, but due to time constraints they want the planner to handle it and do as well they expected to do.

Clients’ initial high expectations are what prompted Katz, after decades in the business, to assemble a roster of psychologically probing questions to ask prospective clients. The inquiries, Katz believes, lead to “meaningful conversations about risk” and “have built in redundancies” to make sure the message gets through to clients. The survey helps frame clients’ understanding that their risk tolerance, which may be based on emotions, won’t necessarily always match their risk requirements necessary for their portfolio to reach the targets they need to achieve. Below are some of the key questions Katz asks her clients:

1. How would you describe your portfolio allocations?

With this one, Katz gives clients multiple-choice answers so they will identify if their asset allocations have changed significantly over time. This question helps the client understand the notion of “designing allocations,’’ she says, and recognize they are taking a position even if their assets are remaining static.

2. What are the reasons you changed portfolio allocations?

Using multiple-choice answers again, Katz uses this question to identify the clients who are “closet” market timers.

3. How would you grade comparatively your various levels of concern? 

With this one, Katz asks the clients to circle numbers 1 through 6 to reflect and evaluate their level of worries about the following: capital preservation, growth, low principal volatility, inflation protection, current cash flow, and aggressive growth. Katz ranks this question as one of her most powerful. She says it helps people understand themselves and their concerns. Most clients today, in the post-recession era, are more afraid of loss of principal than seeking aggressive gains. Her new clients typically tell her: “I’ve lost my shirt, I want you to help me from losing my pants.”

4. Look at the annual returns from 1926 to 2012.

This final gambit is not so much a question Katz poses to clients but rather a contract she asks them to enter. She shows them a chart with average compounded returns and standard deviations for those decades for U.S. Treasury bills, intermediate government bonds, common stocks, small company stocks, as well as inflation rates. She asks the clients to sign acknowledgements they’ve seen the numbers. She then packs away those acknowledgements with plans to retrieve when the market drops



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