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Risk profiling doesn’t start and stop with an Attitude to Risk (ATR) questionnaire. It sits within a larger process, which is carefully followed until all parties are happy with a final output.

To begin with, an initial picture of a client’s ATR is evaluated. Capacity for Risk and Investor Experience are evaluated separately in Dynamic Planner and are there to help prompt a documented discussion to allow you the adviser to use your expertise to analyse softer facts about the client.

Dynamic Planner’s ATR questionnaire flags any inconsistencies in a client’s answers. These again provide a natural opportunity to have a conversation and ensure the client understands the questionnaire and concepts covered within it. Combining this with information from the Capacity questionnaires, advisers can choose an indicative risk level, which is then discussed with the client.

The adviser can use Dynamic Planner’s Value at Risk questionnaire to show the likely range of outcomes and decide if they are acceptable. If not, a new risk level is selected and the discussion is repeated until a suitable risk level is agreed. It is then important to review the client’s risk profile at their next review; see if the client is still happy with their investments; complete the questionnaire again; and see if there have been any big changes to their finances or wider circumstances.

Accurate risk profiling is a great way to reach potentially a clear, metric change in a client’s risk profile since their last review. It also gives you the adviser peace of mind to focus on the discussion it sparks and releases time to fully explore.

ATR, of course, is the amount of risk a person is prepared to take, while Capacity for Risk is the amount that they can afford to risk. A person’s knowledge of their capacity can impact their ATR as measured in a psychometric tool, but they are different concepts.

It is possible for a client to have a high ATR but a low Capacity for Risk (someone, for example, who enjoys picking stocks but has little money) or a low ATR but large capacity (someone, for example, who is decades from retirement and already has sufficient Defined Benefit / State pension to cover basic costs, but who doesn’t want to take any risk with their small Defined Contribution pension pot). In these cases, some education, including stochastic projections, can enable someone to accept a different level of risk than initially indicated.

While we wouldn’t expect Investor Experience to necessarily affect the products recommended, it does provide insight into how to provide advice, the amount of coaching a client may need and the amount of time needed to be set aside to ensure the risks involved with investing are completely understood.

While most people will rightly worry about taking too much risk – and subsequently suffering large losses – there is also a risk, perversely, of taking too little risk. When it is a long-term investment solution, for example a pension, it is very likely that a higher risk product will outperform a lower risk product. Taking too little risk, in that scenario, can have a poor impact on the client’s financial wellbeing. Again here, stochastic projections – or the 20-year line on the Value at Risk table in Dynamic Planner – can demonstrate to the client how riskier investments may perform similarly or better than lower risk ones, even in poor investment conditions.

One of Dynamic Planner’s biggest and core strengths is that it risk profiles investors and investments using the same assumptions. This naturally leads to a fully joined-up process where you, as the adviser, can be sure that the two are suitable and seamlessly match – a perfect marriage for all parties.

Read time: 4min

In early 2018 at Dynamic Planner, we launched a significant improvement to our already market-leading risk profiling service – a new 15-question attitude to risk questionnaire.

Feedback from our thousands of users in the 24 months since has been very positive – and usage of the questionnaire has only grown and risen. All good then.

But why precisely is our 15-question questionnaire better? What problems does it particularly address? Below, we look at the story of the questionnaire, the very real science behind it and how it can be refined even further in future.

Many attitude to risk (ATR) questionnaires are devised in a particular way – which can mean they don’t necessarily have real psychological rigour behind them. They can be devised in a very mathematical way. When we, in partnership with Chris Brooks, Professor of Finance, at Henley Business School, devised the 15-question ATR, we wanted it to have a very sound psychological basis.

Our 15-question ATR looks into why we feel the way we do and makes sure questions carefully cover every facet of an individual’s personality – emotional, cognitive and behavioural – alongside driving, constraining and enabling elements of a client’s personality. By covering each of those areas, a much more theoretically robust picture is produced of why someone’s attitude to risk is the way it is.

In practical terms, wording in the questions is clearer in the 15-question ATR, which means clients of advice firms stop much less frequently while they are completing it and ask, ‘I’m not sure what that means’. In that sense, the 15-question ATR has much less chance of being misunderstood and therefore produces fewer inconsistencies in a client’s answers. Fundamentally then, the 15-question ATR is more sound and is quicker to complete. Win-win.

When the 15-question ATR was first being created, in partnership with Henley Business School, a lot of effort was focused on making questions as easy to read as possible. As a result, there are no double negatives in their wording, which can make a questionnaire appear unnecessarily complex to a client. The client also does not require specialist knowledge to complete it.

Other questionnaires can include multiple, what are termed, ‘killer’ questions, which can elicit an indisputable conclusion from a client: for example, ‘I would never take risk with money’. If a client ‘strongly agrees’ to a question like that – or even ‘agrees’ – any regulator looking at that answer cold can arguably only draw one conclusion about a client’s attitude to risk.

Such inconsistencies are flagged for the adviser to address once the client completes the questionnaire. That cannot happen with the 15-question ATR, because it doesn’t contain those ‘killer’ questions. Of course, there will always occasionally be inconsistencies from a client if they answer questions out of kilter. However, those inconsistencies are dramatically reduced with the 15-question ATR. For example, 95% of clients completing the 15-question questionnaire had one or zero inconsistencies flagged to the adviser and 81% of clients had zero inconsistencies, while only 1% had three or more inconsistencies flagged.

If a questionnaire regularly flags multiple inconsistencies from a client there is a natural danger then that the adviser can miss a potentially important one. Advisers naturally prefer the 15-question ATR because it dramatically reduces those inconsistencies. Anecdotally, we heard from one Dynamic Planner user and adviser, who said that using the 15-question ATR was saving them approximately 15 minutes of time per client, which quickly adds up when you consider all of a firm’s clients.

Risk profiling, of course, is a larger process and attitude to risk represents just one element of that. At Dynamic Planner, we, of course, harboured some concerns before introducing the 15-question ATR, because, by implication, it said that what we had been doing prior, up to that point, with the 10 and 20-question questionnaires, was wrong.

But we believed in what we were doing; we communicated it clearly and openly with Dynamic Planner users ahead of time; and the feedback we have received in the 24 months-plus since has been only positive and unanimously allayed those natural concerns pre-launch in January 2018.

Of course, things get better in business constantly. It doesn’t necessarily mean that what preceded it was wrong or bad. With the 15-question ATR and because of the close nature of our partnership with Henley Business School, we can continually monitor data from clients completing the questionnaire. If then, there are any questions which don’t appear to be working as they should – or as we predict – we can alter and develop wording accordingly. That is not only good business sense but simple common sense we all want to see and experience in our working lives. We should never be afraid of that.

For more information on how Dynamic Planner can help your firm, book a demo with one of our team.

Fresh off the back of our 6th Dynamic Planner Annual Conference, we have released the February changes to Dynamic Planner. This release sees some important changes to Dynamic Planner’s risk profiling process, along with more improvements to our reports.

Risk Profiling enhancements

We have made a number of improvements to the risk profiling process. Firstly, we are excited to reveal our new psychometric Attitude to Risk questionnaire. Following feedback from Dynamic Planner users, work began in close conjunction with leading academics from the International Capital Market Association (ICMA) Centre at Henley Business School to develop the new questionnaire. It is a great enhancement from our previous questionnaires:

In addition, we have also updated the wording of our Investor Experience and Capacity questionnaires, making them more readable and usable. The risk profile descriptions have also been revised and approved by the Plain English Campaign.

All the changes are now live in Dynamic Planner, so sign in now to see them. The changes have been applied to all aspects of Dynamic Planner, including AccessAdvice, our iOS app and Risk Profile Invites.

If you would like more information about the risk profiling process changes, please get in touch with Client Success who will be happy to help.

Report updates

Continuing our rolling series of improvements to the reports, we have made a number of changes to the fact find report generated by Dynamic Planner. If you are not familiar with it, this report can be very useful – it gives you a full listing of the factual information you have entered about a client into Dynamic Planner. This can be great as part of your audit trail at the end of a case, or as the starting point for finding out any key changes since the last review. Along with the report changes we have made in the past few releases, with the fact find report we have:

You can download the new fact find report from the ‘Reports & letters’ screen in either the client record or a case. As always, we are keen for feedback. You can email the product team or use the Knowledge Base in Dynamic Planner for any suggestions.

Joshua Knight

Product Manager