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\nCar Shopper: “I am considering these two cars, can you explain to me the difference between them?<\/span><\/div>\n<\/blockquote>\n\nCar Salesperson: “Sure thing. The one on the left will give you a whiplash when hit from behind and the airbag will break your nose. The one on the right will actually break a number of bones, including a collar bone and will possibly give you back pain for a good long while. Now, which risks are you ready to tolerate?<\/span><\/div>\n<\/blockquote>\n\nCar Shopper: “I’ll take the broken nose please…”<\/span><\/div>\n<\/blockquote>\n\u00a0<\/span><\/div>\nIt seems absurd, yet something like this happened when risk management systems that were created to target specific levels of risk for institutions began to be used by advisors, human and robo alike. Admittedly, some risk management is much better than none and I commend advisors who are pioneers in using this new technology. But the use of risk management in an advisory practice must rise to the critical next level. It must answer the \u2018So what?’ question for the client, i.e., “Why exactly am I incurring this risk. If I am risking a large loss in a junk debt collapse or equity deleveraging, which specific goals am I reaching for? And if I reduce my risk, which goals do I need to give up?”<\/span><\/div>\n\u00a0<\/span><\/div>\n<\/div>\nAdvisors already answer these questions for their clients. We are simply advocating that they connect financial planning to the rigorous risk management process. Risk tolerance is a very important concept, but it is not the only aspect of risk management. In fact, FINRA’s definition of suitability specifically includes the following:<\/span><\/div>\n\u00a0<\/span><\/div>\n<\/div>\n“…customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance.”<\/span><\/div>\n\u00a0<\/span><\/div>\n<\/div>\nRisk tolerance is one out of ten on this list. While we would agree that its importance far exceeds 10%, it is essential to address objectives, horizon, taxes and the like to truly add value for your clients.<\/span><\/div>\n\u00a0<\/span><\/div>\n<\/div>\nBe sure to request a personal tour of Prospects of Wealth 2.0, a new generation solution that combines prospecting and portfolio analytics. Request your exclusive demo below:<\/span><\/div>\n<\/div>\n<\/div>\n
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