Understanding Your Clients: What Is The Importance Of A Client’s Risk Assessment And How Can Financial Advisors Extract Relevant Data To Give Proper Advice? - Pocket Risk


Helping Financial Advisors Know Their Clients – Risk Profiling, Client Psychology, Behavioral Finance, Compliance

Understanding Your Clients: What Is The Importance Of A Client’s Risk Assessment And How Can Financial Advisors Extract Relevant Data To Give Proper Advice?

Financial Advisors Extract Relevant Data

All the investment opportunities come with two constants- Risk and reward. A financial advisor’s task is to communicate both to their clients and come up with lucrative investment opportunities for them.

As a financial advisor, you know that not all clients are the same. Even if two people have the same amount of money, they cannot be presented with the same investment opportunities. The reason is simple; money is not the only determinant for investments. Everyone has different values attached to the money they have.

For instance, a young person with a rich father can probably invest $50K in risky assets and not even flinch if they lose it. However, a person in their late 50s can’t probably afford to lose their $50K on which they are probably planning to retire.

So every client has a different appetite for risk. It is the duty of a financial advisor to understand the client and their circumstances and offer them investment opportunities accordingly. Down below we shall understand the various aspects of a client’s risk assessment and the possible ways for Financial Advisors to better assist their clients:

Investment: The Different Aspects

On the core, there are two different aspects to any investment. The first one is money- the obvious one. The second one is the psychological aspect- How does the client deal with the money they have? As an advisor, it is your prime duty to assess your client’s attitude towards their money as soon as possible.

Depending on their attitude, you’d want to make the safety cushions for yourself and also avoid risking the clients’ money if they can’t psychologically bear high risk. Your analysis must be comprehensive, and frankly, that’s what will retain long-term clients for your business.

Remember, when a person comes to you for advice, they trust you with their money and psychological peace. As a responsible advisor, you should communicate each aspect of the investment as clearly as possible.

While the risks and rewards are always upon the clients, there’s a moral duty that you should always consciously follow. To give empirical and actionable advice to your clients, you’ll need the right tools to assist you. Down below, we shall explore various ways to equip you with the right tools.

Analyse The Objectives And Extracting The Relevant Data

As a great advisor, you must know what your client’s intention behind their investments is. Once you know that, you conduct a risk profiling upon them to see what their appetite for the risk is.

Risk profiling is a combination of 3 key elements- risk required, risk capacity and risk tolerance. Once you have the output for these elements, you may then formulate a suitable strategy. To get to know this information as closely as possible, you’ll need to right tools to assist you. One such tool is the risk tolerance questionnaire which will help you understand your client and their psychology better.

Getting the right questionnaire will help you know the client’s needs and expectations. If you need help with formulating an objective and concrete questionnaire, then contact PocketRisk. We’ll craft a questionnaire that’ll juice out all the relevant information you need to provide great investment options to your clients.

We also offer other tools for financial advisors, such as risk profiling software. Adopting these tools and methods will boost your efficiency and profits.

Well, moving forward, these tools will give you the relevant data, and you can then formulate comprehensive and auditable strategies for your clients.

Final Words

Financial advisors must be thorough in their financial research and understanding of the client to produce great results. The right tools from PocketRisk will not only make you efficient but will also allow you to retain long-term clients.

Having the complete risk profile of the clients helps you come up with concrete and personalized investment strategies. Communicate the risks and rewards as clearly as you can. That’s the way to propose the right investment portfolios to your clientele.