Risk Conversations Only Tell Half of The Story

Risk Conversations Only Tell Half of The Story

A skilled advisor can learn a lot about a client’s risk experiences and attitudes in a conversation. But it may only be half of the story they need to know. There is other critical information that won’t come to the surface that way — to drill-down to it, you need to use scientifically rigorous testing.

That’s what is at the core of our FinaMetrica Risk Profiler, which is built around a scientifically validated psychometric test of financial risk tolerance.

Advisors who use FinaMetrica still often have a risk discussion with their clients. But it begins from a solid, scientific start point — which is the person’s risk tolerance score. This makes the discussions richer, deeper, and more personalized and helps to solidify the professional bond between advisor and client.

The industry blog Nerd’s Eye View, from respected commentator Michael Kitces, recently concluded that it is best to measure risk tolerance with a questionnaire rather than relying solely on an advisor’s judgment based on a conversation.

It discusses a range of factors that can skew an advisor’s personal assessment of risk tolerance based solely on a discussion with the client, including gender which can play a huge role.

Women and men, in a broad generalization, approach conversation differently. Women have been shown in research to be better listeners with higher empathy and mirroring than men. Research has also shown that even the tone of the voice controlling the conversation can make a difference to the outcome.

Of course, regardless of gender, advisors have a certain set of biases that set them apart from their clients and potentially cloud their judgement. For example, the average risk tolerance for advisors is higher than their clients’!

The blog reaches the same conclusion that led to the creation of the FinaMetrica risk tolerance assessment more than 20 years ago. That is, you get the best result for client and advisor when you combine an insightful conversation about risk with a scientific risk tolerance measurement tool.

The Kitces blog is well worth a read! You can find it here: https://www.kitces.com/blog/why-its-best-to-measure-risk-tolerance-with-fintech-questionnaires-instead-of-just-risk-conversations/

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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