Risk profiling ‘astrology’ fails clients

FinaMetrica licenses a 25-question questionnaire used by more than 3000 advisers in seven countries to analyse their clients’ risk tolerance.

And Resnik, who will be speaking at next week’s Institute of Financial Advisers conference, told Good Returns that much of what passes for risk profiling is of no more use to clients than “astrology” when it comes to working out what their investment portfolios should look like.

The test, which takes about 20 minutes for clients to complete, allows them to see how much risk they are willing to tolerate relative to the rest of the population; instructions are provided for advisers recommending how they should explain the results.

Resnik said the first reaction by most advisers to the test, which is “quite unlike anything they have seen before”, is to comment on how long it is.