The risk of failing to consider a couple’s risk tolerance
Advice firms are failing to take both partners’ risk considerations into account when completing risk profiles and face the possibility of losing clients if they feel ignored.
According to research firm Capital Preferences, there was a trend of advisers’ neglecting the female partner when assessing couple’s finances. The firm found around 20% of advisers only risk profiled one member of the couple and 53% risked them jointly.
Failing to consider one member of the couple’s risk could subsequently feed into ‘flight risk’ where the ignored individual felt uncomfortable with the adviser and the way their assets were being invested. There was further risk if the couple divorced and opted for separate advisers at a later date.
The firm said it conducted its own study which used a science-based method to uncover fuller contours of a couple’s risk preferences. This found 60% of couples had a meaningful difference in their risk preference and most were inaccurate about describing their own risk tolerance, which made questionnaires an unreliable method.
Those clients who demonstrated a high confidence in their risk profile were those where the risk profile accurately accounted for each risk profile, when the adviser provided explanations and discussion of their risk tolerance and then used that insight to create a portfolio that accounted for both risk tolerances.
It said: “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 advisors to make.
“This also presents a massive upside opportunity for advisors who re-think 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. These moments are the key to building strong relationships with the second partner, who is most often a woman, well before potential divorce events occur.”
AUTHOR
Laura Dew
Recommended for you
As AFSLs endeavour to meet their breach reporting obligations, a legal expert has emphasised why robust documentation will prove fruitful, particularly in the face of potential regulatory investigations.
Betashares has named the top Australian suburbs with the highest spare cash flow, shining a light on where financial advisers could eye out potential clients.
A relevant provider has received a written direction from the Financial Services and Credit Panel after a superannuation rollover resulted in tax bill of over $200,000 for a client.
Estimates for the calendar year 2024 put the advice industry on track for a loss in adviser numbers as exits offset gains from new entrants.
