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.

• The process will develop a risk profile for a client and they will be risk rated and placed into a category of 1 to 7. This will in turn dictate the clients’ asset allocation and investment strategy and ensure the level of risk and hence return in a client’s portfolio is appropriate relative to their risk appetite and capacity. This will be one of the greatest determinants of a client’s financial planning experience and it is crucial that the approach is thorough and scientific.
• Risk assessment has the added benefit for a client in raising their confidence in the relationship with the adviser as it demonstrates that the adviser understands the need for comprehensive risk assessment and through the employment of a risk profiling tool has taken a scientific approach to this topic. The adviser will not merely rely on their view of a client’s risk rating but seeks to have it quantified on an identifiable scale.
• Increased awareness and knowledge of the clients’ risk attitude, tolerance and capacity for risk will aid the client is making any future financial decisions. It provides a level of comfort that they now have an understanding of how their risk rating is measured and can use this knowledge when making decisions that affect their finances going forward.
• A psychometric risk-tolerance test will produce a detailed picture of a clients’ risk rating allowing for the development of appropriate investment and product strategies and ensuring an optimum level of investment risk or contained in the portfolio. A clearer relationship between the client’s goals and risk appetite will emerge and assist in the investment process.
• Detailed risk assessment builds trust and develops the relationship with the client. Understanding a client’s attitude to risk provides the adviser with the evidence needed to develop a proper financial plan and having a measurable risk rating give credence to the investment strategy the adviser will produce.
• The final benefit of risk assessment covers both client and adviser though it is most relevant to the adviser as in the event of a dispute at a future date it will provide documented evidence of the risk-tolerance test employed. It can also prevent future uncertainty on behalf of the client if an unexpected event occurs over the course of a client’s investment and financial life time plan.