Planners need to differentiate risk tolerances
Financial planners need to understand and take account of the different risk tolerances of couples to whom they are providing financial advice, according to risk profile firm FinaMetrica.
The company has warned that in the absence of taking account of the differing risk tolerances, financial advisers could end up in hot water the next time there is a market fall.
The company claims that financial advisers need to consider the risk preferences of each person in a couple and not ignore the needs of the less risk-tolerant partner, typically the woman, noting that in 66 per cent of couples, men have a higher tolerance for financial risk than their female partners.
“Where there is a material difference in their risk tolerance levels, in 84 per cent of cases it is the man who is the risk taker,” the company said.
FinaMetrica co-founder Paul Resnik said that it was in these circumstances that financial advisers had to consider the risk tolerance of each person in developing a financial plan and deciding on suitable investments.
“In the next market fall, the financial adviser could end up in hot water with both the lower risk tolerant partner and possibly with regulators if they recommended risky investments without the lesser risk-tolerant partner understanding and agreeing to the plan,” he said.
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