How to adjust your client’s investment goals and risk tolerance for an ideal portfolio


Risk in itself is neither good nor bad, but it is extremely important that you understand what risk and how much of it you are taking. As advisors are adopting wealth management technology, they seem to be focused on the risk tolerance aspect of risk system implementation.

If we look at guidelines by FINRA, the investment suitability definition goes far beyond risk tolerance: “…include the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance.” From here, we see that risk tolerance (we underlined it) is only one of the aspects of investment constraints, but there many other constraints. Moreover, we see that besides the investment constraints, there are investment objectives, which are actually the reason why an investor wants to take the risk in the first place. After all, nobody really wants any risk; in an ideal world we would get return with no risk (and as advisors know, some investors seem to demand that). Risk taking is what we do in order to achieve our goals.


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