Important Misconceptions About Risk Tolerance

Having a clearer understanding of how to assess risk tolerance and successfully incorporate the results into your planning process is critical to the quality of your client relationships. If you misread your clients' risk tolerance, your clients are in danger of being overexposed or underexpose...

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Bibliographic Details
Published inThe Planner Vol. 29; no. 4; p. 7
Main Author Nunnally, Tyler D
Format Trade Publication Article
LanguageEnglish
Published New York American Institute of Certified Public Accountants 01.07.2013
Subjects
Asset allocation
Bear markets
Behavior
Emotions
Financial planners
Financial planning
Investment policy
Investments
Perceptions
Planning
Portfolio management
Questionnaires
Risk aversion
Stocks
Volatility
United States > US
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Summary:Having a clearer understanding of how to assess risk tolerance and successfully incorporate the results into your planning process is critical to the quality of your client relationships. If you misread your clients' risk tolerance, your clients are in danger of being overexposed or underexposed to risk. Overexposure can lead to a panicked sale in a downturn, while underexposure can result in missed opportunities. Subsequently, by getting it wrong, your practice may experience high rates of client attrition due to dissatisfaction. The most common misconceptions about risk tolerance include the following: 1. There is uncertainty about what risk tolerance actually is. 2. All risk tolerance questionnaires are the same. 3. Risk tolerance and risk capacity are the same. 4. Risk tolerance fluctuates with market volatility,
ISSN:0895-3570