What We’re Doing Wrong with Risk Tolerance
Advisor Michael Kitces, high-profile author, speaker and expert in the industry, clues us in on the risk tolerance assessment within financial advising.
The video titled “What We’re Doing Wrong with Risk Tolerance,” featuring Michael Kitces, discusses the evolving landscape of risk tolerance assessments within financial advising. Kitces highlights the increasing scrutiny and importance of accurately assessing risk tolerance, especially in light of fiduciary duties under regulations like ERISA. He questions the adequacy of traditional, simplistic risk tolerance questionnaires and emphasizes the need for more sophisticated and defensible methods.
Kitces mentions the rise of third-party tools designed to improve risk tolerance assessments, pointing out that these tools leverage advancements in technology and behavioral finance. He notes that different approaches exist, from the gambling-style questions of Riskalyze to the psychometric methods of Finametrica and others, each offering unique insights and methods for evaluating risk tolerance.
Overall, Kitces is optimistic about the industry’s direction, with more tools becoming available to help advisors make better, more defensible decisions regarding client risk tolerance.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
