SOURCE: Riskalyze

FiComm Partners

April 20, 2015 09:00 ET

Riskalyze Releases New Whitepaper; Identifies Significant Flaws in Stereotypical Age-Based Risk Tolerance Investing

SACRAMENTO, CA--(Marketwired - April 20, 2015) -

  • Riskalyze data shows that 26% to 53% of clients fall outside of their stereotypical age-based "risk tolerance" buckets
  • Qualitative "risk tolerance" discussions do not help clients or advisors to work together effectively in up and down markets -- quantitative based "risk preference" discussions are much more accurate, and helpful
  • Quantitative risk preference alignment between advisor and client dramatically increases productivity, efficiency and advisory firm growth

Riskalyze, the company that invented the Risk Number™ for financial advisors and their clients to use to align risk preference with portfolio risk, released its latest whitepaper today, revealing important findings with regard to quantitative vs. qualitative risk assessment methodology. The whitepaper identifies the flaws inherent in age-based risk stereotyping and discusses how properly approached conversations about risk can substantially improve quality of life for advisors and clients alike. 

Today's digital and mobile technology oriented world offers clients access to unlimited information in real time as never before. As such, advisors are experiencing ever-increasing challenges in managing client expectations and communication with regard to investment performance. Riskalyze has found that when the discussion about risk focuses on either returns or ambiguous risk tolerance cohorts such as "conservative" or "aggressive," the resulting communication gap can be harmful to firm efficiency and the advisor/client relationship. 

Instead, advisors who focus on educating clients on the uniqueness of their quantitative Risk Number, backed by science and Nobel Prize winning economic theory, can more effectively anchor their client relationships with mutual understanding. 

"Qualitative 'risk tolerance' assessment is frankly ambiguous, and serves 53% of clients in their seventies inaccurately," says Aaron Klein, CEO at Riskalyze. "If you're renovating your house, imagine if you told the contractor you'd like the width of the new stairway to be "moderately aggressive," and then they applied their perception of what you meant to how they completed the project. Metrics and numbers exist so we can be more precise, better aligned -- this is the case when discussing risk preferences."

The paper also found that age-based stereotyping when discussing risk can lead to serious misalignment, with anywhere from 26 to 53% of clients falling outside of their stereotypical age based 'risk tolerance' buckets. The misalignment is demonstrated across all age brackets with 52.9% of clients' age 20-29 invested outside their risk preference, and that percentage being 53% for clients over age 70. 

"The correct way to define an individual's risk preference is 'how far can their portfolio fall within a fixed period of time before they will capitulate and make a poor investing decision,'" said Mike McDaniel, Chief Investment Officer at Riskalyze. "The net effect of using numbers instead of conjecture to discuss risk are happy and satisfied clients, regardless of which way the market is swinging. This in turn leads to greater efficiency, productivity and client relationships. What advisor doesn't want that?"

For the full copy of the new Riskalyze whitepaper, Using Risk to Manage Client Expectations: How to Gain ROI by Talking About Risk Instead of Returns, please visit: 

For all media inquiries regarding the whitepaper and Riskalyze's findings, or to arrange an interview with CEO Aaron Klein, please contact:

Riskalyze invented the Risk Number™ and was named as one of the world's 10 most innovative companies in finance by Fast Company Magazine. Riskalyze works with RIAs, hybrid advisors, independent broker-dealers, custodians, clearing firms and asset managers to align the world's investments with investor risk preference. Twitter: @Riskalyze

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