Risk tool aims to lower portfolio “blood pressure”
Financial services software group FinaMetrica has launched what it claims is Australia’s first web-based risk tolerance assessment tool for consumers.
The online instrument has been developed over four years in conjunction with the University of New South Wales’ applied psychology unit and uses FinaMetrica’s psychometric profiling methodology to allow investors to calculate and understand their financial risk tolerance levels.
According to FinaMetrica chief executive Geoff Davey, it is important for consumers to be aware of their financial comfort zone in order to ensure their financial plans’ “financial blood pressure” remains at an acceptable level.
“All individuals need to know and understand their own risk tolerance. Couples need to understand one another’s. And, if you use a financial adviser, you need to be very sure that he or she understands your risk tolerance,” Davey says.
He adds that the old-style risk questionnaires used by the majority of planners do not work, arguing that they tend to be theoretically unsound and that studies have demonstrated that they do not work in practice.
“Assessing a psychological attribute such as risk tolerance requires a special set of skills and disciplines, psychometrics,” Davey says.
With an increased national focus on managing personal finances, Davey says financial advisers have an unequivocal legal obligation to assess client risk tolerance levels.
“[This] springs from current Australian common law and the fiduciary nature of the advisor/client relationship.”
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