What is really risky? – Risk profiling can start some interesting discussions

What is really risky?

The hardest part of my job is to work out what makes my clients worry when it comes to investments. Over the years I have tried and tested many strategies to measure risk, as I know we all have. Currently Parsonage uses Finametrica’s questionnaire because we think it’s the best one.

I like it because it doesn’t ask technical questions; instead it asks questions about real life so people can relate to it better. Sometimes, though, it throws up some interesting discussions, such as…

..My client, who owns a successful business, answered that she would prefer a job with more job security than a job with more pay. She probably wasn’t expecting me to laugh when she gave that answer, and she didn’t really need me to remind me that if she doesn’t sell her products she doesn’t eat. She knows that. But to her, owning her own business offers more job security, because in her words “nobody can sack me”.

…I also understand that clients like (let’s call him Harvey) don’t need to chase an extra 1% a year growth. They would rather relax in the knowledge that their investments are equally unlikely to shoot out the lights as they are to plummet to new depths.

…Another client recently answered that she has never geared-up, in other words, she has never borrowed money to invest into something. I asked how she had purchased her rental property? She said she hadn’t borrowed to invest because she already had the cash even though she did borrow to replace the cash. You can imagine the discussion we had about that.

These are just a few examples and there have been many many similar exchanges between me and business owning clients over the years. There is definitely a theme. Investments feel risky because somebody else is in control. I understand that and I can relate to it.

I could interpret these apparent contradictions as a failing of the risk profiling system. I don’t. I think that any risk profiling result that provokes that kind of a discussion between me and my clients can only be useful.

I’ve shared these vignettes because I’m fascinated by the way people make their financial decisions.

I am also interested to hear your perspective, what would be your answer to those three questions? If you’d like to take the Finametrica Risk Profiling test yourself without paying their retail fee, drop me a line with your name and email address.

Flora Maudsley-Barton

Here's a little more information about our team:

Q: Qualifications Include

A: My degree in modern languages included a module on economics and personal finance, and that's how I got into financial planning.

Since then, I've become dual qualified as both a Certified Financial Planner and a Chartered Financial Planner, including the specialist qualifications in Tax & Trusts (G10) and Pensions (AF3/G60).

The full list is:

AF3 - Pensions (CII) (I did that to totally update my pension knowledge, as I had done G60 in 1994.)
K10 - Retirement Options (CII)
K20 - Pensions Investment Options (CII)
G20 - Personal Investment Planning (CII)
Chartered Financial Planner (CII)
ER1 - Equity Release (CII)
HR1 - Home Reversion Plans (CII)
G10 - Taxation and Trusts (CII)
CFP - Certified Financial Planner Licence (IFP)
H15 - Supervision and Sales (CII) 

In November 2016 I added the STEP (Society of Trust and Estate Practicioners) Certificate for Financial Services.

Q: Do your clients have anything in common with each other?

A: They are all lovely and there are a few similarities in their aims that I've noticed. 

Many of my clients want to do more than just meet their own needs. They also see themselves as custodians of their money for the next generation or for other beneficiaries. 

In other cases, their aim is to manage their wealth efficiently during their lifetime, with the aim of spending it all… but minimising tax on the way there.

Q: What type of work do you enjoy most?

A: I do get a real sense of satisfaction from the work with those clients who engage me to manage the needs of two generations of the same time. That can be 'just' a long-term and balanced investment strategy or it can be trust planning and estate planning to avoid paying too much Inheritance Tax.

Q: Where would you be right now if you weren't at work?

A: In the Lakes

Q: In the film of your life, who would play you?

A: In my head, it's Uma Thurman, but I expect they would approach 'Nursey' from Blackadder II.

Q: Curry or Hot Pot?

A: Agh, too difficult. Curry.

Q: Sherbert or Chocolate?

A: Chocolate

Q: Lawn or Flowers?

A: Lawn

Q: What are you most likely to do whilst being 'on hold'?

A: Infuriate my colleagues by opening conversations then cutting off their reply when my call is answered.