{"id":5180,"date":"2019-08-15T20:13:51","date_gmt":"2019-08-15T20:13:51","guid":{"rendered":"https:\/\/investingcounterpoint.com\/?p=5180"},"modified":"2019-10-24T13:46:16","modified_gmt":"2019-10-24T18:46:16","slug":"capture-your-clients-risk-profile-with-the-pct-questionnaire","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/capture-your-clients-risk-profile-with-the-pct-questionnaire\/","title":{"rendered":"Capture Your Client’s Risk Profile with the PCT Questionnaire"},"content":{"rendered":"\r\n\r\n \r\n
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  1. Sending a Risk Questionnaire<\/a><\/strong><\/li>\r\n \t
  2. First, Risk Tolerance<\/a><\/strong><\/li>\r\n \t
  3. Expanding the Picture with Risk Capacity<\/a><\/strong><\/li>\r\n \t
  4. So the Investor Completed the Questionnaire, Now What?<\/a><\/strong><\/li>\r\n \t
  5. Key Takeaways<\/a><\/strong><\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n

    At Larkspur-Rixtrema, we know how important it is for financial advisors to understand their client’s risk preferences, so they can utilize appropriate investment products for their client\u2019s portfolios. Simply measuring risk tolerance based on a client\u2019s psychological assessment of their willingness to take risks is not enough. Portfolio Crash Testing PRO (PCT Pro) presents a complementary metric to objectively measure risk preference: Risk Capacity<\/a>. Now, PCT Pro offers both an objective risk capacity assessment and a psychological risk tolerance questionnaire that will streamline this risk assessment and help advisors use a holistic approach to creating appropriate investment portfolios and educating clients. Measuring a client\u2019s risk capacity takes just a few minutes of the client\u2019s time but illustrates a critical investment risk metric and their likelihood of achieving their retirement goals. Both tolerance and willingness can be assessed by sending a single risk questionnaire, making the process seamless to clients.<\/p>\r\n

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    Sending a Risk Questionnaire<\/strong><\/h2>\r\n

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    To send a risk questionnaire to a client, first open up your client list in PCT Pro (Figure 1). Either add a new client or just check to see that the email is correct in your client list before clicking on the share icon (Figure 2). This will display a URL that you can send to the client via email. After receiving the email, the investor client can complete the questionnaire at their convenience by answering the Risk Tolerance questions.<\/p>\r\n

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    Figure 1 : PCT Pro Main Page <\/strong><\/figcaption><\/figure>\r\n

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    Figure 2: Client Selection Screen<\/strong><\/figcaption><\/figure>\r\n

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    First, Risk Tolerance<\/strong><\/h2>\r\n

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    With just 5 simple questions, the risk tolerance questionnaire will explore the client\u2019s emotional investment judgement. This is the point when many advisors stop explaining the risk narrative, but the risk tolerance is only half the picture. Not to mention, that emotional responses can change based on what is happening in your client\u2019s life and assessments taken months apart can often result in disparate results. Halfway through the questionnaire, a Risk Tolerance Score will be provided following a graphic illustration of the trade-off between risk and reward (Figure 3). The investor can click and drag the circles to understand this trade off and accept the appropriate measure.<\/p>\r\n

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    Figure 3: Risk Tolerance Illustration<\/strong><\/figcaption><\/figure>\r\n

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    Expanding the Picture with Risk\r\nCapacity<\/strong><\/h2>\r\n

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    Neglecting the client\u2019s Risk Capacity would\u00a0leave the investor client without an understanding of if their risk tolerance\u00a0is compatible with their retirement goals. The Risk Capacity connects how their\u00a0present investment behavior and emotional judgement may be missing their\u00a0retirement goals. It reminds the client that the financial advisor is building\u00a0a personalized portfolio \u2014 and not just some packaged portfolio for their own\u00a0benefit.<\/p>\r\n

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    After completing the risk tolerance section, the client will complete an investment survey questionnaire to provide basic information about where they are on their journey to retirement (i.e. age, amount saved, time to retirement etc.). Based on this information, PCT Pro runs a Monte Carlo simulation of 1000 hypothetical market situations, and displays a summary page reviewing their responses (Figure 4).<\/p>\r\n

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    Figure 4: Monte Carlo Graphic of Risk Capacity<\/strong><\/figcaption><\/figure>\r\n

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    So the Investor Completed the Questionnaire, Now What?<\/strong><\/h2>\r\n

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    When the client has completed the questionnaire, the Financial Advisor will see corresponding risk tolerance and risk capacity numbers next to the client\u2019s name (Figure 5). This prepares them to discuss the meaning of these scores and take steps to build a portfolio that will balance the client\u2019s emotional willingness (risk tolerance) and their ability to take risk (Risk Capacity).<\/p>\r\n

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    Figure 5: Score-Updated Client Selection Screen<\/strong><\/figcaption><\/figure>\r\n

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    Key Takeaways<\/strong><\/h2>\r\n

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