‘Massive upside opportunity’ for advisers who rethink risk profiling

The report found that as many as one in five advisers profiles only one person in a couple and that the neglected partner is usually the woman.

The research firm discovered that 60 per cent of couples have meaningful differences in risk preferences and that they represent an “asset flight” risk to advisers. In fact, according to Capital Preferences, they are six times as likely to decrease assets under management (AUM) compared to couples in the same risk quintile.

“We speculate that couples with larger risk gaps have at least one partner who doesn’t feel comfortable with the way their assets are currently invested, which feeds through to the intent to move AUM,” the researcher said.

Moreover, the report found that 53 per cent of adviser risk profile partners do so jointly, where they both weigh in on a single risk profile.

According to the researcher, this approach is highly prone to partners biasing each other’s answers, especially since the male is frequently the primary financial decision maker.

“As a result, most advisers are flying blind when it comes to detecting risk preference gaps and the AUM risk that comes with it. It’s a costly mistake, both financially and ethically, for advisers to make,” the researcher said.

The firm also took issue with the method used by advisers when performing risk profiling, which it claims still relies heavily on questionnaires and dialogue. This, Capital Preferences said, is especially susceptible to bias and imprecision.

Namely, despite advisers having a keen sense of “reading clients”, the report uncovered that risk tolerance questionnaires or dialogue make it more difficult to detect risk preference gaps.

As such, Capital Preferences noted a “massive upside opportunity” for advisers who rethink the risk profiling experience for couples.

“Advisers who can efficiently engage, understand, and enfranchise each partner set themselves up to create shared, memorable advice moments with the couple,” it said.

A quality engagement was described as one that profiled each partner’s individual risk attitude, which the adviser then used to facilitate an insightful discussion about what each partner’s risk attitude meant for their combined financial plan. These advisers were also said to have helped the couple reach a consensus on a shared risk profile that fairly accounted for each partner’s individual risk attitudes.