Investor Risk Score

OnPointe Risk Analyzer uses a simple, yet effective, risk questionnaire process, along with industry benchmarks and targets to calculate an investor risk score for each lead or client. The investor risk score is comprised from data provided in the risk questionnaire to calculate an investor’s risk capacity and personal risk tolerance levels. The investor risk score can be used to more closely align an individual with an ideal investment portfolio and to provide the necessary data required to have a purposeful discussion about their unique needs and desires.

Why Risk Tolerance and Risk Capacity?

The questionnaires that many financial tools and advisors use to assess an investor’s risk are typically one-dimensional, focusing far too much on the investor’s emotional ability to handle loss.

Simply asking investors how they “think” they may handle large market losses and defining investment goals based upon their mental or emotional tolerance is not a sound way to offer investment advice or build portfolios.

Every investor is unique when it comes to their ideal retirement lifestyle, financial goals, time horizons, risk tolerance, and their individual risk capacity.

Many industry tools never properly benchmark or measure an investor’s risk capacity, leaving a huge void of essential information required to provide financial advice and goal-oriented portfolio recommendations.

Both Risk Tolerance and Risk Capacity are important in determining how much risk investors should be taking in their unique financial situation.

What is Risk Tolerance?

Risk Tolerance is a psychological factor – it is all about behavior and mental attitude. It is related to how well investors can emotionally handle downturns in the market.

Although understanding risk tolerance is important, it should not be the only determining factor in how much risk an investor should take in their portfolio. Risk capacity, as explained below, is also very important and, arguably, the most important factor to consider.

What is Risk Capacity?

Risk Capacity has to do with the life impact a market downturn would have on an investor’s ability to reach their goals at a certain future point in time.

This is different from risk tolerance, which is about how investors feel about risk and how much they are willing to take. Risk capacity is about whether investors can financially afford to take a certain amount of risk at their current age, income level, etc.

Combining Personal Risk Tolerance with Risk Capacity

OnPointe Risk Analyzer calculates the Investor Risk Score by using collected data to assess both Risk Capacity and Personal Risk Tolerance and then merges them together into a single number using our proprietary algorithms.

This calculated Investor Risk Score is calibrated within our software to match the risk levels of individual investments and portfolios, allowing advisors and their clients to devise a plan and select portfolios more closely aligned with investor’s goals.