Unraveling Risk Tolerance

Informed Canadian Investor

I imagine you have completed the risk tolerance questionnaire. It is related to investing though I’ve had one client say it is like throwing salt over your shoulder.
The risk tolerance has a few questions and the client’s choices create a score. This score determines the weight of stocks and bonds this process recommends.
I like the risk tolerance questionnaire because I get to read my client’s emotions and level of objectivity, which helps me coach them to invest for their needs.
Let’s look at the three types of clients the risk tolerance identifies:
The first type accepts what the risk-tolerance process recommends.
As Investing is inherently intimidating, people often put a wealth of trust in their financial advisor and the advisory firm. They are taking a good step though they would benefit from learning more about investing. This is one reason why I made this podcast.
The second type of client has little interest in what the process recommends. Maybe the client wants all GICs or all stocks.
Through listening to this client’s emotions and objectivity, I know if they are the source of their own misfortune or whether they know the investment world. Said in a different way, I know whether the client will be a lot of work or whether they will be someone who rolls up their sleeves when we work together.
The third type asks the question, is this the right balance for me?
When I hear this question, it is a breath of fresh air. It means the client is engaged in their future and are seeking a partnership with their advisor instead of putting full trust in what they receive.
The objective of this episode is to encourage everyone who listens to become the third type of client. Ask questions. Few advisors can answer all questions, but those that go the extra mile to answer questions transparently are the ones that personalize their service to their clients.
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