Assess Risk Capacity

The next step in the Dynamic Planner risk profiling process is to assess the investor’s risk capacity by exploring the impact that possible losses may have on their wider financial position.

This involves discussing the following key questions relating to their personal circumstances:

  • How long they are planning to invest for
  • How much they can afford to lose
  • How quickly they would need access to the investment

The answers do not change the attitude to risk questionnaire results. However, the way they are captured helps to prompt meaningful discussions with the financial planner and also provides a proper record behind the ultimate risk decisions taken.

It is not uncommon for an investor to have an attitude to risk that is different from their capacity to take it on.

For example, someone approaching or in retirement who has a high psychometric attitude to risk score may not have the capacity to take risk on, given their need for greater certainty of income.

This is why discussing attitude and risk capacity with a financial planner is an important part of the process.