One of the most important parts of a thorough fact find is to assess the level of risk a client is willing to take. What is their risk profile? Risk is subjective and means something different to everyone, so it is important that you establish what risk means to each individual client.
Your risk assessment should explore the client’s general appetite to risk, how much risk they require to meet their investment goals and how much loss they are willing and able to bear in reality. This is often called a client’s risk capacity. The risk capacity can be assessed by exploring the impact of possible losses on their wider financial position.
Risk Required | Risk Appetite | Risk Capacity
Here are a few key discussion points in relation to your clients’ personal circumstances:
- How long are they planning to invest for?
- How much can they afford to lose?
- How quickly might they need access to the investment?