(September 2006) One of the hardest things for any financial planner to come to grips with is a client’s risk tolerance. As an investment planner, it is your job to translate subjective feelings into something more objective that can be used to guide the construction of an investment portfolio. Unfortunately, there is no standard measurement or method of assessing a client’s risk tolerance. A wide variety of descriptive or quantitative questionnaires are available, and you have to choose a method that works best for you.
Use this sample risk tolerance questionnaire from the Financial Planning Practitioner’s Guide — created by the Canadian Institute of Financial Planners — to help get you started.
Risk Tolerance Questionnaire
Circle the response that best describes you. Remember that risk tolerance is largely subjective, so there is no right or wrong answer.
1. What is your current age?
2. When do you expect to need to withdraw cash from your investment portfolio?
3. How many months of current living expenses could you cover with your present savings and liquid, short-term investments, before you would have to draw on your investment portfolio?
4. Over the next few years, what do you expect will happen to your income?
5. What percentage of your gross annual income have you been able to save in recent years?
6. Over the next few years, what do you expect will happen to your rate of savings?
7. What are your return expectations for your portfolio?
8. How would you characterize your personality?
9. When monitoring your investments over time, what do you think you will tend to focus on?
10. Suppose you had $10,000 to invest and the choice of 5 different portfolios with a range of possible outcomes after a single year. Which of the following portfolios would you feel most comfortable investing in?
11. If the value of your investment portfolio dropped by 20% in one year, what would you do?
12. Which of the following risks or events do you fear most?
Give the following points for each answer: a = 1, b = 2, c = 3, d = 4, e = 5
This template is part of the Financial Planning Practitioner’s Guide created by the CIFPs which is available exclusively to its members. The CIFPs is an association of Canadian CFP™ licensees. The association is an independent, effective and powerful CFP-focused advocate for the CFP™ certification marks and the financial planning profession in Canada.
The Financial Planning Practitioner’s Guide won the “Award of Excellence” in a competition for technical publications sponsored by the Society of Technical Communication