Comments on: How I’m Building Scalability Into My Practice http://www.roadtoindependenceblog.com/2007/08/31/how-im-building-scalability-into-my-practice/ Thu, 02 Sep 2010 01:15:43 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Michael Patton http://www.roadtoindependenceblog.com/2007/08/31/how-im-building-scalability-into-my-practice/comment-page-1/#comment-234 Michael Patton Wed, 05 Sep 2007 17:20:48 +0000 ia-wordup-8119#comment-234 Good comments. The purpose, in my view, is not to CYA but to assess the clients risk tolerance as accurately as possible. I don't think clients relate to a gain or loss in percentage terms as well as they would in dollar terms. Also, it's important to relate the gain/loss potential of the account in the context of their overall wealth. Dr. Kahneman discusses this issue of framing the problem. For instance, instead of saying the account may lose $X or gain $Y he would say your net worth, as a result of this account (in part), may decline to $X or increase to $Y. On the issue of the gap between the risk Q and the model portfolio, I use MCS to simulate the performance of the account for various periods. This "range" is broken out into deciles and I use this to illustrate the potential variance of the account (even though there may be outliers). What do you mean by a benchmark? Thanks. Good comments. The purpose, in my view, is not to CYA but to assess the clients risk tolerance as accurately as possible. I don’t think clients relate to a gain or loss in percentage terms as well as they would in dollar terms. Also, it’s important to relate the gain/loss potential of the account in the context of their overall wealth. Dr. Kahneman discusses this issue of framing the problem. For instance, instead of saying the account may lose $X or gain $Y he would say your net worth, as a result of this account (in part), may decline to $X or increase to $Y. On the issue of the gap between the risk Q and the model portfolio, I use MCS to simulate the performance of the account for various periods. This “range” is broken out into deciles and I use this to illustrate the potential variance of the account (even though there may be outliers). What do you mean by a benchmark?
Thanks.

]]> By: JOHN HAMEL http://www.roadtoindependenceblog.com/2007/08/31/how-im-building-scalability-into-my-practice/comment-page-1/#comment-233 JOHN HAMEL Wed, 05 Sep 2007 02:59:08 +0000 ia-wordup-8119#comment-233 Several years ago I built a risk tolerance for a very successful RIA firm. I looked for research that showed what percent amount clients could stomach in losses. I never did find any but if you know of sources please let me know. Saddly, I found many in the industry to admit that it was mostly to CYA the firm. Many times the advisor told the client what answer to select. I don't blame the advisor for this because the questionnaire did little to assess the client's risk. I believe more research in this area is critical if an advisor were to really assess his clients true risk tolerance. I think the biggest gap is between the risk tolerance questionnaire and the matching of that with investment models. My question: How can an advisor really assess a client's risk tolerance if there's no benchmark? And without a benchmark: How can you say that a 15% loss is a Moderate Risk Portfolio? Several years ago I built a risk tolerance for a very successful RIA firm.

I looked for research that showed what percent amount clients could stomach in losses. I never did find any but if you know of sources please let me know. Saddly, I found many in the industry to admit that it was mostly to CYA the firm. Many times the advisor told the client what answer to select. I don’t blame the advisor for this because the questionnaire did little to assess the client’s risk.

I believe more research in this area is critical if an advisor were to really assess his clients true risk tolerance. I think the biggest gap is between the risk tolerance questionnaire and the matching of that with investment models.

My question: How can an advisor really assess a client’s risk tolerance if there’s no benchmark? And without a benchmark: How can you say that a 15% loss is a Moderate Risk Portfolio?

]]> By: JOHN HAMEL http://www.roadtoindependenceblog.com/2007/08/31/how-im-building-scalability-into-my-practice/comment-page-1/#comment-232 JOHN HAMEL Wed, 05 Sep 2007 02:49:43 +0000 ia-wordup-8119#comment-232 Several years ago I built a risk tolerance for a very successful RIA firm. I looked for research that showed what percent amount clients could stomach in losses. I never did find any but if you know of sources please let me know. Saddly, I found many in the industry to admit that it was mostly to CYA the firm. Many times the advisor told the client what answer to select. I don't blame the advisor for this because the questionnaire did little to assess the client's risk. I believe more research in this area is critical if an advisor were to really assess his clients true risk tolerance. I think the biggest gap is between the risk tolerance questionnaire and the matching of that with investment models. My question: How can an advisor really assess a client's risk tolerance if there's no benchmark? And without a benchmark: How can you say that a 15% loss is a Moderate Risk Portfolio? Several years ago I built a risk tolerance for a very successful RIA firm.

I looked for research that showed what percent amount clients could stomach in losses. I never did find any but if you know of sources please let me know. Saddly, I found many in the industry to admit that it was mostly to CYA the firm. Many times the advisor told the client what answer to select. I don’t blame the advisor for this because the questionnaire did little to assess the client’s risk.

I believe more research in this area is critical if an advisor were to really assess his clients true risk tolerance. I think the biggest gap is between the risk tolerance questionnaire and the matching of that with investment models.

My question: How can an advisor really assess a client’s risk tolerance if there’s no benchmark? And without a benchmark: How can you say that a 15% loss is a Moderate Risk Portfolio?

]]> By: PATRICK VALENTY http://www.roadtoindependenceblog.com/2007/08/31/how-im-building-scalability-into-my-practice/comment-page-1/#comment-231 PATRICK VALENTY Tue, 04 Sep 2007 20:03:33 +0000 ia-wordup-8119#comment-231 Your risk questionnaire and process is very interesting. What are chances of getting a copy? Your risk questionnaire and process is very interesting. What are chances of getting a copy?

]]>