Saturday, June 15, 2013

Evaluation of Client Risk Profile – Part I /II (Risk Ability)


One of the key elements to ensure client satisfaction is to recognize what risk an investment client is willing to take and what he is emotionally able to deal with. If the content of a portfolio matches with the client’s risk profile, he will stay calm even in case of minus performance.  On the other hand, if investments are not corresponding with the risk the client is willing and able to take, even a positive performance will not lead to full satisfaction.


Risk Ability

It defines the client’s ability to cope with financial losses, without a noticeable effect on his standard of living. Evaluating client’s risk ability is the easier part. 

 The client advisor needs to analyze the client’s current holdings and future inflows and outflows.
  • What is the size and the asset type
  • What inflow will be generated based on client’s holdings such earnings on dividends/interest
  • What is his monthly salary
  • Are there any future inflows to be expected, such as inheritances etc.
  • What will be his future financial obligations, such as interest payments & redemption of loans
  • What are his living costs, regular payments, tax payments etc.
An important factor is to channel all this information and above all to visualize it. Like this the client advisor can ensure, that the client does not forget to provide important information. In order to provide the best possible personalized investment solution, it is important that this visualization reflects the clients overall situation. Whenever possible the advisor should therefore try to find out about holdings the investment client has with other banks.
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