Many clients have inaccurate perceptions of the amount of risk they can handle, putting the onus on you to help them determine their true risk tolerance. Clients overestimate the amount of risk they can take. Advisor often have to adjust those expectations. Clients often are unaware of the risks associated with various investment products, says Arthur Azimian, financial advisor with Edward Jones in Mississauga, Ont. They are typically willing to take on more risk when market performance is good, but become risk-averse when markets are volatile. There are two aspects to risk: risk tolerance and risk capacity. Risk tolerance is based on clients emotional make-up and reflects how much risk they are willing to take. Risk capacity is the more empirical measure of the amount of risk clients can take based their circumstances such as age, income and net worth. Lesotho Business Executive gives four steps that can help you arrive at an accurate risk profile: 1. Start with your clients view of risk. 2. Look beyond know your clients. 3. Present various risk scenarios. 4. Balance risk tolerance with risk capacity.
Posted on: Thu, 17 Jul 2014 01:34:33 +0000
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