Our client’s risk assessment is completed at the very early stages of the process. It will dictate the clients risk rating and ultimately the investment strategy pursued with the objective of achieving the client’s financial goals.
As referred to in our previous article “The 5 Step Financial Planning Process” a client’s risk assessment is completed at the very early stages of the process. It will dictate the clients risk rating and ultimately the investment strategy pursued with the objective of achieving the client’s financial goals.
Sophisticated risk assessment has many benefits and this article will concentrate on the most important benefits for client and financial adviser alike.
Risk assessment explained
The financial planning risk assessment is measured under three headings:
1. Attitude to risk:
This measures the clients understanding of the concept of risk and how it applies to their life and financial matters.
2. Tolerance for risk:
This seeks to explore how much volatility a client is prepared to absorb and observe over the lifetime of an investment based on past experience and future expectation.
3. Capacity for risk
This quantifies the clients’ ability to absorb a loss or their rate of change in financial circumstance if a large gain or loss was the outcome of an investment.
Benefits to a client of risk assessment
A client that has been through a thorough and comprehensive risk assessment will experience a number of important benefits.