Category Archives: Advisor Resources

How to educate clients to set realistic goals based on their risk tolerance and capacity ?

risk-tolerance-goalsThe risk questionnaire is not an instrument that collects information about a client in order to automatically assign him a type of investment. It is a way to get to know the client and his goals, priorities and behavior in order to help him make the best decision that is suitable to him.

Clients have different goals and it is important for an adviser to know if they are realistic in order to avoid eventual disappointments from the part of the client. An unhappy client may affect company’s reputation & credibility so that is why an adviser has to ensure that the customer has all the information and is aware of the investment risks. If a client has required knowledgebase this can help him make the best decision and also be more understanding and patient when the evolution of the market is unfavorable.

The client must have a certain degree of financial literacy and if this is not the case the adviser must talk to him about portfolio composition, market volatility and the tradeoff between risk and return. These explanations do not have to be very detailed but they have to present the general picture of the market and of the economic cycles so that the client understands the risks but also the advantages of investing in the assets of a portfolio.

It is known that the goals of the customers can variate widely and can be about wealth accumulation, retirement funding or saving for a large purchase. It is important that these goals are suited to the financial situation of the clients and their risk tolerance and capacity. A high risk tolerance can also be interpreted as a favorable attitude toward risk or risk appetite. A high risk capacity means that the client has enough funds in order to not be seriously affected by a market decline at least to an extent. If the client has the right attitude and the right financial stability, risk becomes less of a liability and more of a chance to obtain profits.

The problem with the goal of getting rich is that it is an oversimplification, so it can be reformulated as improving one’s financial situation to an extent. The extent in question is determined by the assets, cycles and properties of the market. The client must also be aware that the improvement in his financial situation is visible only in the long term and until then periods of portfolio appreciation and depreciation can appear.

There are no right attitudes toward risk as it depends on the individual. Somebody who has risk appetite is not necessarily more informed or entitled to his opinion than somebody having risk aversion. After a decline in the market it is not obviously correct to sell assets or give up on investments as the decline period can persist or a market rally can appear.

It is important that the client can argument his attitude about risk so the adviser can understand and offer him the type of investment that is most suitable. A client with an uncertain source of income or with a low risk capacity shouldn’t choose a high volatility portfolio even if he has a high risk tolerance. In cases such as these the adviser has to talk to the client in order to ensure that the investor is not affected too much about the losses in specific periods in order to be in a position to gain in the long term and is aware that overall he can obtain real profits.

The main point is that the goals of the customer have to be balanced with the risk tolerance and capacity. The risk questionnaire collects information quickly and accurately that shows if this is the case and if not the adviser has to talk more with the client so that an accord is reached about the best course of action after the client has received all the relevant information. A higher goal requires the client to contend with more uncertainty by investing in a riskier portfolio and the risk tolerance and risk capacity have to be aligned to this approach.

Technology Does Not Replace The Advice And Direction Of An Advisor – Tony Leal – President, MoneyGuidePro #FearlessFinancialAdvisorPodcast

Tony LeadA discussion with Tony Leal, President and CTO of PIEtech/MoneyGuidePro on the future of technology in financial planning. MoneyGuidePro is recognised as the most popular financial planning software in the U.S. It’s software is used by independent solo advisors all the way up to Schwab. As leaders in the industry their developments are watched by thousands of advisors and firms.

Listen to the interview below.

In This Interview We Discuss…

0:25 – MoneyGuidePro has been around for about 17 years, what’s the vision for the years to come?

01:25 – Are you serving advisors or end clients?

02:05 – How do you see the financial planning process changing due to technologies like MoneyGuidePro?

03:20 – What is myMoneyGuide? Why is it important?

05:20 – What are your thoughts on robo-advisors? How do you see MoneyGuidePro helping advisors as they are challenged by new technology?

09:12 – What advice would you give to small advisory firms given what you see in the industry.

12:10 – What differentiates the top/best performing advisors from the rest?

13:33 – What advice would you give to your 30 year old?


Learn more about Tony Leal

Interview MP3

Is There Money To Be Made Serving Younger Clients? #FearlessFinancialAdvisorPodcast

A topic near and dear to our hearts. How to profitably serve millennial clients. In this video I am speaking with Alan Moore MS, CFP®, Co-founder at XY Planning Network. XY Planning Network is the leading organization of fee-only financial advisors who specialize in working with Gen X and Gen Y clients. They offer comprehensive resources to help financial planners run better and more successful businesses.

In This Interview We Discuss…

0:23 – What is XY Planning Network?

01:32 – Is there a market to serve younger clients?

03:41 – Is there money to be made serving younger clients?

06:25 – What fee structure works best for younger clients?

07:42 – How to attract younger clients

10:25 – Does investment management matter to younger clients?

13:45 – CFP Curriculum

14:53 – What is the best way to serve younger clients?

17:13 – Is it too much work serving younger clients?

18:14 – Trust and client acquisition costs

23:21 – What advice would you give to your younger self?


Alan Moore XYLearn more about Alan Moore

Interview MP3

Client Suitability Compliance: A Comparative Review Of The USA, UK, Canada and Australia

Suitability ComplianceWe can learn a lot from our neighbours, including how to manage a client’s suitability for a certain investments. The U.S., U.K, Canada, Australia and a number of other countries have produced guidelines around client suitability including the use of risk tolerance questionnaires. Below is an overview of where each country stands.

U.S.A. – Financial Industry Regulatory Authority (FINRA) and Securities Exchange Commission (SEC)

FINRA Rule 2111 discusses client suitability when advisors recommend investments. It states advisors must…

have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer’s investment profile. In general, a customer’s investment profile would include the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance.

FINRA defines risk tolerance as a client’s “ability and willingness to lose some or all of [the] original investment in exchange for greater potential returns”. This what we would call risk tolerance and risk capacity. With regards to questions and questionnaires FINRA states they must not be “confusing or misleading“. Advisors are not forced to use a risk questionnaire but FINRA recognizes advisors use such tools as a best practice.

Financial Advisors regulated by the SEC are held to the fiduciary standard, meaning they must legally and ethically act in people’s best interest. The SEC provides little specifics on risk questionnaires. However, they do say any presentation of data must be clear and not misleading.

U.K. – Financial Conduct Authority (Formerly the Financial Services Authority)

The UK has the most prescriptive suitability rules in the world. In 2011 the FSA released “Assessing Suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection“. The assessment found that most advisors were not properly assessing client suitability for investment. Their main findings were that…

  • Advisors were not diligently assessing risk tolerance AND risk capacity
  • Advisors were not assessing clients’ investment knowledge and experience
  • Advisors were using poorly constructed questionnaires that could sway clients too far into aggressive risks. Questionnaires did not have enough granularity.

Since this paper was released standards for suitability investment have increased. All UK advisors now have to provide a Suitability Report when recommending investments to clients.

Canada – Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA)

Canada has a complex financial regulatory system due it’s decentralized government. Financial regulation happens at the national level and at the provence level. However, the responsibility for client suitability has been led by the IIROC and the MFDA.

The IIROC has a series of KYC (Know Your Client) regulations including the requirement to demonstrate a client’s risk willingness, financial ability, time horizon and investment objectives. There is no specific mention of using a risk questionnaire but KYC forms are encouraged.

MFDA has been significantly more prescriptive and even provided a basic “safe harbor” risk questionnaire for financial advisors. They are the first regulator to talk about the need to measure a client’s risk tolerance, risk capacity and risk needs. Jointly these represent a person’s overall risk profile.

Australia – Australian Securities and Investments Commission

The focus for Australian regulators is that best interests have been applied by the Financial Services Professional (FSPs). Professionals must ensure the financial products they recommend are suitable having regard to each client’s objectives, financial situation and needs. An important part of an FSP’s assessment of a client’s objectives, financial situation and needs is the knowledge of the client’s tolerance to risk.

The regulator goes a step further and states FSPs should “educate their clients about risk and reward” and ensure couples are assessed individually.

ASIC and the Financial Ombudsman are supportive of risk questionnaires but state FSPs should not be 100% dependent on their results. They should use their judgement in conjunction with a questionnaire.


Regulators support and acknowledge the concepts of risk tolerance, risk capacity and risk need. They are increasingly prescriptive about measuring these constructs however, they don’t want a client assessment to become a “check the box” exercise and have thus shied away from developing detailed questionnaires. What they are looking for is consistency, objectivity and diligence when advisors recommend investments to clients.

The Future Of Financial Planning Is Not What You Expect – Interview with Bob Veres #FearlessFinancialAdvisorPodcast

A wide ranging interview with Bob Veres about the future of financial planning. Bob Veres is the former editor of Financial Planning Magazine and creator of the Insider’s Forum conference and Inside Information newsletter. He has been commenting and contributing to the industry for over 30 years. He recently released a new book called the New Profession, which we also discuss.

In This Interview We Discuss…

0:34 – Why is financial planning an “Emerging profession”? Hasn’t it already emerged?

2:45 – Making financial planning a true profession.

08:15 – What is the single biggest determinant in a financial planner’s success?

10:22 – Future of AUM business model

13:20 – How to develop a flexible “change agile” mind as an advisor.

14:20 – How to market your financial planning firm.

17:00 – How should advisors manage client behavior as markets move up and down?

22:00 – What advice would Bob Veres give to his 30 year old self?


Bob Veres InterviewLearn more about Bob Veres

New Profession Book

Interview MP3