The risk questionnaire is a starting point

What the lesson covers

1. 01

   The client

   Sam fills in a risk questionnaire and ticks the highest risk tolerance. A minute later, Sam mentions selling everything during the last market decline, because the losses were too hard to watch. The form says one thing, the behaviour says another. Which one tells you how Sam will react next time?

2. 02

   Explore it

   Don’t smooth the contradiction over. Ask what happened in that decline, how much loss Sam could afford, and when the money is needed. Risk tolerance is how much loss someone can stomach. Risk capacity is how much loss their finances can absorb. The two are not the same.

3. 03

   The whole picture

   Now suppose Sam wants to invest an inheritance, but also carries a large credit-card balance at a very high rate. Paying that balance down is a certain return. No fund can promise to beat it. So the responsible order is: understand the whole situation, deal with the expensive debt, and only then consider investing.

4. 04

   Exam move

   Here is how the exam asks it. Accept the questionnaire? No. A tick box cannot override what the client actually did. Refuse until a second questionnaire? No. Another form would not resolve the contradiction. The most aggressive fund, to match the file? No. That would be a suitability failure. Explore the contradiction, and set the profile using her actual behaviour as well as her answers. That is the answer.

5. 05

   Takeaway

   When stated tolerance and past behaviour disagree, investigate, and document what you find. A questionnaire starts the conversation. It never ends it.