<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>The risk profiling process is one of the most under-utilised assets the financial planning profession has at its disposal. This paper presents a novel approach to risk profiling, which is based on the application of the psychology literature to develop an empirical risk profiling system. This paper provides a theoretical foundation for considering the risk profiling system by applying the literature from self-control, optimism, financial literacy, and risk tolerance, to a risk profiling system. This paper discusses how understanding client levels of self-control can impact ‘stickability’ to a financial plan, and how prior knowledge of optimism, financial literacy and risk tolerance can enable financial planners to have more engaging discussions and design more tailored financial plans for their clients. This is the first stage of the research project, with the second stage the development and testing of a risk profiling system based on the theory within this paper.</p>
</abstract>

The risk profiling process is one of the most under-utilised assets the financial planning profession has at its disposal. This paper presents a novel approach to risk profiling, which is based on the application of the psychology literature to develop an empirical risk profiling system. This paper provides a theoretical foundation for considering the risk profiling system by applying the literature from self-control, optimism, financial literacy, and risk tolerance, to a risk profiling system. This paper discusses how understanding client levels of self-control can impact ‘stickability’ to a financial plan, and how prior knowledge of optimism, financial literacy and risk tolerance can enable financial planners to have more engaging discussions and design more tailored financial plans for their clients. This is the first stage of the research project, with the second stage the development and testing of a risk profiling system based on the theory within this paper.

Investment Risk Profiling: Lessons from Psychology

Financial Planning Research Journal

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Investment Risk Profiling: Lessons from Psychology"}

The risk profiling process is one of the most under-utilised assets the financial planning profession has at its disposal. This paper presents a novel approach...

Investment Risk Profiling: Lessons from Psychology

Published Online: Mar 17, 2024

Page range: 49 - 63

Received: Jun 09, 2016

Accepted: Aug 29, 2016

DOI: https://doi.org/10.2478/fprj-2016-0008

© 2016 Katherine Hunt, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.