Defining and Measuring Risk Capacity

Defining and Measuring Risk Capacity

Academy of Financial Services, Las Vegas

Fall 2011 (Best Paper Award Winner) and published in the Financial Services Review 2012 


New generation models of assessing a client’s profile for investment purposes differentiates among factors like the client’s tolerance for risk which is a psychological trait, the client’s required risk which is a how much risk a client might be required to take to achieve desired goals, and risk capacity which is how much risk the client can afford to take. Risk tolerance assessments have taken significant strides forward with the introduction of psychometrics, but when it comes to defining risk capacity, the approach remains anecdotal. Client profiling questionnaires may ask one or two questions like “How much risk can you afford to take?”, but what is “risk capacity” and how do we measure it?


I have been using FinaMetrica for over 17 years for onboarding new clients. They like the extensive value of the reports; but what we appreciate is the innovations in technology, the value of the client-facing materials and the development of the life-long client relationships as I get to really know their behavioral tendencies. FinaMetrica has assisted me in building a very successful practice and we highly recommend it for any advisor who wants to enhance the overall value of their client relationships.

Ron Wilkinson - Portland, Oregon, USA
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