Risk tolerance questionnaires can help advisors better understand what their clients need when developing a financial plan. Clients may complete this questionnaire during the onboarding process and the answers they provide can inform your decision-making when offering financial advice. Putting together a template that organizes risk tolerance questions by topic can make it easier to analyze the information you collect.
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Assessing risk is an integral part of what you do as an advisor. You need to understand the degree of risk a client is willing to take and the amount of risk they need to take to reach their financial goals.
Risk tolerance questionnaires allow you to gauge a client’s comfort with risk and their thought processes when it comes to investing and money management. They can also help you gauge their overall knowledge of investing and risk.
The answers a client provides can depend on a variety of factors, including their:
A questionnaire alone isn’t the only tool you’ll need to develop a financial strategy for your clients. You’ll also need to spend some time talking over their needs and goals. But their answers can give you a framework for deciding how to approach those discussions.
A risk tolerance questionnaire doesn’t need to be overly complicated. Asking 10 questions or less is typically enough to get a sense of a client’s risk tolerance, without overwhelming. The key is knowing the right questions to include.
There are plenty of examples of risk tolerance questionnaires available online. The following template is one that you can use as-is or adapt to fit the needs of your client base.
There’s no right or wrong way to format a risk tolerance questionnaire. You might use a framework similar to the one above or create your own.
Here are a few things to keep in mind as you develop your questionnaire:
There are software applications that can simplify the process of creating a risk tolerance questionnaire that’s compliant and addresses the most important questions you’d like to ask. When comparing risk tolerance software, consider the full range of features included, what you’ll pay and how easily the software integrates with the rest of your tech stack.
Risk tolerance questionnaires are essentially learning tools advisors can use to better understand how comfortable their clients are with risk. A risk tolerance questionnaire can also be useful for determining how an investor’s comfort level aligns with their risk capacity.
Financial advisors measure risk tolerance using a client’s time horizon and goals for investing. Having clients fill out a risk tolerance questionnaire can give advisors a better idea of where they are financially, where they eventually want to end up and how much risk they’re willing to take to get there.
Risk tolerance operates on a range, with the most conservative investors at one end and the most aggressive at the other. In the middle, you have investors who prefer a moderate approach that evenly balances risk and reward, along with investors who have moderately conservative or moderately aggressive leanings.
Risk tolerance questionnaires are a helpful tool you can use to get to know your clients better. Understanding where your clients are on the risk scale now and as they move through the investing life cycle can help you meet their needs more effectively.
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Rebecca Lake, CEPF®Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.
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