Risk Tolerance Tag

Summary of full article (published by CFA Institute Research Foundation)   Risk profiling is fraught with misunderstandings that lead to ill-advised approaches to determining investment suitability. These include using observed behaviour to determine risk tolerance; optimising for “behavioural” risk attitudes, rather than helping clients mitigate and control them; eliciting risk tolerance on subcomponents of overall wealth; using overengineered and unstable approaches for measuring risk...

Over 8 years ago in 2008, in the early days of setting up the Barclays behavioural finance team, and just before we were hit by the financial crisis, I wrote an article on things to avoid when designing a measure of Risk Tolerance. It contained 12 principles that designers of such tools should follow to ensure that what they are measuring provides a...