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A study into UK Financial Planners opinions on risk tolerance and risk perception

Author

Listed:
  • Ian Smith

    () (Manchester Metropolitan University)

Abstract

Risk tolerance needs to be assessed before financial planners provide advice on the suitability of investments. Previous studies have questioned whether investors risk tolerance remains stable over time or whether investor?s perception of the risk attached to investments is the factor that varies.This study reviews the methods currently employed by UK Financial Planners following the guidance the UK Regulator published in 2011. The study was based on both online and paper based questionnaires completed by Financial Planners and explores the method used and the planner?s views on the stability of their clients risk tolerance and perceptions of risk over time.56 sets of questionnaires were obtained and the data analysed using SPSS v21. The results showed that two proprietary psychometric based tests were most popular along with planners own in-house systems. The responses of the planners supported the theory that risk profile is a stable personality trait for most people and that their clients perceptions of risk are less stable.

Suggested Citation

  • Ian Smith, 2016. "A study into UK Financial Planners opinions on risk tolerance and risk perception," Proceedings of International Academic Conferences 4006388, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iacpro:4006388
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    File URL: https://iises.net/proceedings/24th-international-academic-conference-barcelona/table-of-content/detail?cid=40&iid=084&rid=6388
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Jacobs, Heiko & Müller, Sebastian & Weber, Martin, 2014. "How should individual investors diversify? An empirical evaluation of alternative asset allocation policies," Journal of Financial Markets, Elsevier, vol. 19(C), pages 62-85.
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    3. Joost M.E. Pennings & Ale Smidts, 2000. "Assessing the Construct Validity of Risk Attitude," Management Science, INFORMS, vol. 46(10), pages 1337-1348, October.
    4. Robert Faff & Daniel Mulino & Daniel Chai, 2008. "On The Linkage Between Financial Risk Tolerance And Risk Aversion," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(1), pages 1-23, March.
    5. Van de Venter, Gerhard & Michayluk, David & Davey, Geoff, 2012. "A longitudinal study of financial risk tolerance," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 794-800.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk tolerance; risk profile; Financial planning; financial advice; personal investment; risk perception;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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