As you’ll know, every three years, we ask you to complete an ‘investment risk questionnaire’ – it’s that online form which takes you through 25 questions reflecting on how you would feel and react in various situations, some of which seem relevant, others (like the one where you inherit a house by a potential new road route) might seem less so to some.
So what’s really the point of it?
We’ve been using the Finametrica risk profiler for well over a decade. This psychometric questionnaire blends psychology with statistics and takes the results from over a million responses, to predict the suitable outcomes. As you’ll recall, at the end of the questions, you are asked to predict where you sit on a scale of 1-100, then Finametrica gives it’s opinion on how you responded. Most clients are with 5-10 points of their prediction, a very small number getting it spot on – well done if that’s you.
The point of it, and indeed any risk profiling tool, is to act, not as a prescription for the portfolio you invest in (just because the computer says 50, it doesn’t mean you need to invest in portfolio 50), but rather a reflective basis for a discussion. It’s about expectations and reactions – how would you feel if X or Y happened? We want you to be at ease with what happens along your investment journey, so that you can focus on living now and working towards the possibilities in the future, not reacting to the latest financial data promoted to gain media interest.
Risk profiling tools such as this, help us spot any outlying responses – where your expectations may be very different from the rest of your answers (a common one here is the expectation of return when compared to bank savings rates), we can then discuss your views – and that is really the whole point – to act as a base for a meaningful discussion not a finite outcome.
Volatility tolerance would be a more useful description. We see investments change in value with the market conditions, they continually fluctuate, and what we are really trying to capture is how our clients will feel during that journey, and be prepared not to worry when the expected happens – the markets change direction temporarily.
In a world of two steps forward and one step back, the momentum is still forward, and how long we want those steps to be very much depends on our tolerance to volatility.
We’re aware that after completing the exercise three or four times, the reflectiveness and impact of the questions may run a little dry. In order to keep things fresh, we are going to look at a similar questionnaire to Finametrica, this time designed by Oxford Risk. They were founded in 2002 by leading behavioural scientists at Oxford University, winning numerous awards along the way.
Initially, we are looking for a selection of volunteers to try the new questionnaire, and give us feedback on how you find it. We are hoping that this will be the catalyst for a wider client panel to help us innovate and improve the service to all.
What to do next?
If you are interested in taking part in the next few months, please let us know at firstname.lastname@example.org and we’ll be in touch. Once you have completed the initial questionnaire, your adviser will spend some time with you to talk through how you found it, and how the outcome compared to your previous responses.