Use Risk to Build Trust with Clients

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Riskalyze’s Aaron Klein kicked off the first full day of sessions at FPA Retreat 2015 Tuesday morning by delivering a presentation on using a four-letter word to build trust with clients. No, not that four-letter word. Klein was taking about risk.

His message to the advisers in the room was simple: we often do things simply because “that’s the way we’ve always done them.” Stop talking about risk and setting return expectations with clients the way perhaps you were trained. Instead, get clients invested within the bounds they are comfortable with and they will be more likely to stay invested for the long haul.

How do you do that? First, define risk tolerance correctly. According to Klein, the “true” definition of risk tolerance is:

“How far can my portfolio fall, within a fixed period of time, before I capitulate and make an emotionally charged poor investing decision?”

Although Riskalyze offers advisers software, based on the Nobel-prize winning economic theory “prospect theory,” Klein told attendees how they can help clients determine their risk tolerance using real dollar figures, real portfolio balances, and a white board.

Klein says properly understanding risk tolerance is a huge opportunity for advisers: “Show prospects they’re invested wrong. Prove to clients they’re invested right.”

Schulaka Carly_resizedCarly Schulaka
Journal of Financial Planning
Denver, CO


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