Client Risk Questionnaire (and Risk Score)
OnPointe Risk Analyzer was built on the concept that comprehensive investment risk analysis software should be based on a foundation that comes from the “real world.” In the real world, during the last major stock market crash, the S&P 500 was down over 50% and a typical 60/40 blend was down over 35%.
Other industry risk analysis companies claim prize winning theories, but when an investor risk questionnaire presents confusing and unrealistic data (would you be happy with a 10% return with a 10% drawdown or an 8% return with an 8% drawdown), it is likely to result in irrational decision making and unrealistic outcomes. This is NOT the case with OnPointe Risk Analyzer. OnPointe Risk Analyzer is tightly calibrated to market movements and presents both personal client risk and investment risk in a consistent and market aligned manner.
Below is an image from the last page of the OnPointe client risk questionnaire. It presents the client’s risk score and their portfolio comfort range using “real world” rate of return and drawdown risk. To try the client risk questionnaire, click here.
A client’s personal risk score sets the foundation for future discussions about the risk of their current investment portfolio and typically a better constructed one an advisor will create using the personal risk score as a guide.
Using OnPointe Risk Analyzer, an advisor can accurately score a client’s current portfolio as well as create a new portfolio mix that is better aligned to the client’s personal risk score. This gives clients confidence that the advisor is using technology to put forth the most suitable offering to help clients protect and grow their money for and throughout retirement.
Risk Capacity vs. Risk Tolerance
Most investor risk questionnaires in the marketplace focus solely on investment risk tolerance (how a client feels when the market turns negative). OnPointe Risk Analyzer believes that it is vital to incorporate risk capacity (a client’s financial ability to take risk) into the equation when determining their “risk score.” Therefore, the first part of the client risk questionnaire determines a client’s risk capacity and the second part determines the client’s risk tolerance.
OnPointe’s Client Risk Questionnaire is “Dynamic”
Depending on how a client answers the risk capacity questions, their risk tolerance questions will have a different starting point.
This starting point is critical in helping an investor think about investment risk from a place that is more aligned with their personal timelines and investment goals.
We do not advocate slaving the client to an exact risk score. There are other factors that should be discussed as an advisor determines the best investment mix for clients.
Because OnPointe Risk Analyzer determines both a risk capacity score and risk tolerance score, many times these scores will not be compatible. When there is too big of a divergence, the software warns advisors that they need to sit down and talk with clients about the divergence.
Optional 3-Bucket Investment Page
Many advisors follow the K-I-S-S (Keep It Simple Stupid) method when discussing investment options for clients. We also know that many advisors like to incorporate the “proper” use of FIAs (fixed indexed annuities) into a financial plan for the “safe money.”
There is a toggle in the questionnaire settings area that allows an advisor to use an optional and unique three-bucket page. This page allows clients to envision allocating money to three different buckets. The following image illustrates those three buckets for an example client who has allocated 20% to bucket #1, 50% to bucket #2, and 30% to bucket #3.
This slide can help advisors better understand how their clients think about investing and investment risk, and will be a useful tool when ultimately determining their optimal portfolio of assets.
This page can also be useful for compliance purposes when illustrating suitability for the recommendation of FIAs in an overall financial plan.
The client questionnaire will be the launching pad advisors will use to bring new clients in the door and start a discussion about their money. The risk score will be the guidepost that both clients and advisors will use as the client goes through the educational process of understanding their own risk capacity/tolerance, the risk of their current portfolio, and the risk of a new portfolio offered by the advisor.