What is Risk Profiling?

Gauging risk limits for comfortable lifetime clients

Risk profiling is the process of assessing what level of risk your clients can mentally and financially handle. Accurate assessment means relaxed and happy clients.

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  • Profiling Steps

  • Step 1

    Administer surveys

  • Step 2

    Assess risk profile

  • Step 3

    Recommend suitable investments

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riskTRACK™ Methodology

We analysed the competition to find the best questions

The riskTRACK™ methodology was built to take the best elements of existing surveys, purify them, and then exploit them to generate highly reliable risk scores.

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What is a Risk Profile?

A person's risk profile is the combination of many individual risk factors, which in sum shape their risk taking behaviour. We call psychological factors the person's "willingness" to take risk and practical factors their "ability"


  • Risk profile is the overlap of willingness & ability

Why assess your client's risk profile?
Correctly assessing their risk profile will minimise panic during inevitable downturns and reduce blame placed for unexpected losses.

Stackup Formula for Better Advice

Our system equips you to make winning recommendations through deep insights, a defendable process and your client’s informed consent

  • 1. Psychometric Risk Profile

  • Administer surveys

    Send risk profiling surveys to be completed on any device before your client meetings.

    Robust, academically validated

    Psychometrically measure your client’s risk tolerance with a dynamically generated long or short form risk profiling questionnaire.

  • Review responses

    Receive alerts for responses which are not internally consistent with one another.

    Discuss and explore risk

    Often your client's risk perceptions are the most important items to discuss and resolve to ensure their expectations are consistent with their experience.

  • Generate profiling report

    Present beautiful risk profile reports optimised for digital delivery.

    Beautiful, compelling reports

    Teach your clients about their Risk Profile Report and comfort portfolio in a way that they’ll actually understand. View sample.

  • 2. Formulate Advice

  • Find candidate portfolios

    Determine a portfolio that is a candidate to meet your client's risk willingness, need and ability.

    Wholistically find the right risk

    Assess and combine the three key risk profiling inputs of willingess, need and ability for optimal recommendations.

  • 3. Verify Advice

  • Test candidate portfolios

    Verify your clients are comfortable with the candidate portfolio.

    Experientially test your client's risk tolerance

    Use the Past Performance Report to show your clients what it's actually like to own the candidate portfolio while verifying their comfort for informed consent. View Sample.

  • Set Expectations

    Teach clients about market norms and what they can expect.

    Foster grit via aligned expectations

    Show clients what they can expect from the market and what is normal to decrease the chance of surprises and forced selling during downturns.

  • 4. Signoff & Consent

  • Sign off

    Obtain philosophical and physical sign off of your shared risk profile plan.

    Shared decisions for informed consent

    Discuss the risk profiling process and your client's comfort with the candidate portfolio becoming their optimal portfolio. Document this agreement.

Methodology

Robust Risk Profiles.

Stackup Risk Scores (SRS) are the product of hundreds of hours of finance and psychology research, integrated with the best elements of current industry practice. We've leveraged on this to generate risk scores that provide highly reliable estimates of risk tolerance. Here's what we did:

  •   1   Theoretical Model

    We started by identifying a theoretical model that, as holistically as possible, describes risk tolerance.

    The literature is broad and diverse, however Cordell (2001) provides a solid framework for defining risk tolerance. Risk tolerance is defined as the maximum amount of uncertainty someone is willing to accept when making a financial decision, and is influence by a range of highly individual psychological and contextual factors, such as a client’s attitude and propensity to take financial risks, along with their financial literacy and capacity for loss. Cordell’s (2001) model encompasses each of these components, so we used it as the starting point for our risk score.

  •   2   Question Generation

    From the theoretical model, we progressed to developing questions that would measure each relevant factor of a comprehensive risk profile.

    We began by collating a database of questions, which were reflective of common industry practice. Our goal was to compile a comprehensive list of questions with subtle differences that would elicit nuanced individual responses. From this large database, we analysed each question in consultation with our psychology and finance team to filter out questions that had in-built bias or readability issues. We were left with a set of 115 questions that were considered valid.

  •   3   Survey Purification

    Our next task was to determine which questions from our large sample were best at eliciting relevant risk profile preferences from our respondents.

    To do this, we had hundreds of people who were representative of the population as a whole complete the full 115 question set. Their responses provided the data on which our next analyses were performed. Through a statistical method called factor analysis, we grouped questions with strong correlations together. These question groups mapped onto the factors that we set out to assess, as per our initial theoretical model. We discarded other questions that showed too much divergence or overlap. We were able to purify our question list down to a more manageable set, while retaining enough breadth of focus for a comprehensive questionnaire. We now had a set of 25 questions.

  •   4   Robustness Checking

    With our survey length more manageable, we next validated our chosen questions statistically for their ability to measure risk behaviours.

    Our end goal was to develop a survey that could place clients in appropriate investments for them. Thus, the survey’s ability to predict which investments would make each client feel comfortable throughout the cycle was key. Our analysis into validity via a stepwise regression found that our questionnaire was indeed good at explaining people's allocation to risk assets. Our reliability analysis with a statistical test called Cronbach's alpha showed that the questions within each factor group were highly internally consistent and thus likely to be measuring the same thing. We now had a reliable, valid and comprehensive survey that was ready for industry practice.

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