Totum

Risk Profiling

Why Risk Preference and Risk Capacity Need to Be Scored Separately

Risk tolerance questionnaires have traditionally consisted of questions that produce one score centered around risk preference or attitude, which advisors then use to create portfolios or record the rationale for how they match clients to specific firm models. This can often create misalignment as it may not expose the entire reality of an individual’s overall …

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Multidimensional risk capacity approach for financial advisors

Why Fact-Based Multidimensional Risk Capacity Is a Superior Approach for Financial Advisors to Profile Their Clients

Advisors have traditionally used risk tolerance questionnaires and basic timelines as the basis for portfolio recommendations. Unfortunately, these practices are riddled with flaws. As outlined below, including and prioritizing risk capacity offers a far superior method in advising clients with their investments. The Pitfalls of Risk Tolerance Questionnaires Risk tolerance, or preference, is based on …

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Portfolio Risk

How Today’s Portfolio Risk Assessment Tools Rely On AI and Big Data To Better Serve Their Clients

Traditionally, advisors were only able to capture inputs directly from their clients. This information was often very subjective and relied heavily on the clients’ feelings about investing and risk. Fact-based questions were often limited to a small set of questions, such as time horizon and availability of assets.  Even still, these “facts” were vulnerable to …

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