THIS IS FOR FINANCIAL ADVISER USE ONLY AND SHOULDN’T BE RELIED UPON BY ANY OTHER PERSON.

RISK ATTITUDE PROFILING QUESTIONNAIRE

FACTSHEET
Our Risk Attitude Profiling Questionnaire is based on the A2Risk Attitude to Risk Profile Questionnaire.
This paper outlines the questionnaire and explains the role it can play as part of a financial planning process.

The following text is reproduced from the A2Risk Risk attitude, on the other hand, has more to do with
Attitude to Risk Questionnaire which was developed the individual’s psychology than with their financial
by Alistair Byrne and David Blake. circumstances. Some individuals will find the prospect
of volatility in their investments and the chance of
WHAT IS RISK? losses distressing to think about. Others will be more
relaxed about those issues.
Technically speaking, risk means that there could be a
number of different possible outcomes associated with Individuals should also consider their need to take
a particular action or activity and we do not know investment risk to meet their financial goals. Investors
beforehand which one will occur. Think about tossing typically need to take risk to make higher returns.
a coin, for example. Investment goals may need to be reconsidered if the
investor is unable or unwilling to take enough risk to
In more everyday terms, people often think of risk as
earn the required returns.
being the prospect of an undesirable outcome, such as
making a financial loss. Another way of putting that could The reconciliation of attitude to risk, risk capacity, and
be the chance of not meeting your goals or objectives. the need to take risk is a crucial part of the financial
planning process.
Risk exists in a number of different situations, but our
concern here is with investment risk. By investment risk
we mean the volatility associated with the prices on and MEASURING RISK TOLERANCE AND
returns from investments. RISK ATTITUDE
The conventional view is that ability to take risk
WHAT IS FINANCIAL RISK TOLERANCE? and willingness to take risk should be considered
separately in the financial planning process. We have
Some individuals are more able to tolerate financial risk
developed a profiling questionnaire that can be used
than others. Researchers have argued that investment
in assessing investment risk attitude. Obviously, risk
risk tolerance can be broken down into two parts:
attitude is a complex area and, as a result, risk profiling
1) Ability to take risk (or “risk capacity”) is not an exact science. Nonetheless, a well-designed
2) Willingness to take risk (or “risk attitude”) risk profiling tool can contribute significantly to the
financial planning process.
An individual’s ability to take risk relates to their
financial circumstances and their investment goals. The risk attitude profiling questionnaire is an online
Generally speaking, the higher the individual’s level questionnaire designed according to the established
of wealth and income, relative to any liabilities they principles of psychometrics, that is, the science of
have, and the longer their investment horizon, the measuring individuals’ attitudes.
Investments

more able they will be to take investment risk, with the

corresponding potential for losses, and the greater their
risk capacity. Consideration of these issues should be a
key part of the financial planning process.
The questionnaire consists of a series of short statements SCORING THE QUESTIONNAIRE
each of which is followed by a scale where the individual Each question is answered on a five-point scale ranging
can indicate the extent to which he or she agrees with the from Strongly Agree through to Strongly Disagree. In the
statement. The scale, known as a Likert Scale, consists of: questionnaire there is a broad balance of normal questions
• Strongly Agree where agreement indicates an inclination to take risk and
‘reverse’ questions where agreement indicates aversion to
• Agree risk. The overall risk score is compiled by equally weighting
• No Strong Opinion the answers to the various questions, having regard to
whether they are normal or reverse questions.
• Disagree
We adjust the raw scores from the questionnaire so that the
• Strongly Disagree average respondent gets a normalised score of 50. The score
categories are shown in the following table:
The advantage of this approach is the statements are short
and easy to read and can be answered relatively quickly.
Investor Category Normalised Score Range
All of the questions were tested in a pilot study. Questions Very Cautious 0 - 25
that were not well understood or which caused other
difficulties were eliminated. A norm group was created Cautious 26 - 33
using responses from a sample of 2052 adults representative Moderately Cautious 34 - 44
of the British population. The analysis was done online in Balanced 45 - 56
December 2013 by the polling company YouGov. The norm
analysis allows us to position any client’s score relative to Moderately Adventurous 57 - 67
the attitude to risk of the wider British population. It is Adventurous 68 - 79
notable that the population as a whole is relatively risk Very Adventurous 80 – 100
averse when it comes to investment.

ASPECTS OF FINANCIAL RISK ATTITUDE

Financial risk attitude is a complex construct and comprises
a number of interrelated aspects. The risk attitude profiling
questionnaire is designed to capture several aspects of risk
attitude:
1) Investment knowledge – Generally speaking,
individuals who are more knowledgeable about
investment are more willing to accept investment risk.
2) Comfort with risk – Some individuals have
psychological traits that allow them to take risk. These
individuals typically see risk as involving a ‘thrill’ or
‘opportunity’ rather than as ‘danger’ or a ‘loss’.
3) Investment choice – Risk attitude can also be gauged
in preferences for different types of investments, e.g. the
relative safety of a bank account versus the potential risk
of stocks and shares.
4) Regret – is the negative emotion that arises from
making a decision that is, after the fact, wrong.

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DESCRIPTION OF INVESTOR RISK ATTITUDE Category 4 – Balanced Investors
CATEGORIES [Normalised score 45-56]
Balanced investors typically have moderate levels of
Category 1 – Very Cautious Investors knowledge about investment matters and will pay some
[Normalised score 0-25] attention to keeping up to date with investment matters.
Very Cautious investors typically have very low levels of They may have some experience of investment, including
knowledge of investment matters and very limited interest investing in products containing riskier assets such as
in keeping up to date with investment issues. They are equities and bonds.
unlikely to have experience of investment, having only
In general, balanced investors understand that they have to
saved into bank accounts.
take investment risk in order to be able to meet their long-
In general, Very Cautious investors prefer knowing that term goals. They are likely to be willing to take risk with
their capital is safe rather than seeking high returns. They part of their available assets.
are not comfortable with the thought of investing in the
Balanced investors will usually be able to make up their
stockmarket and would rather keep their money in the bank.
minds on investment matters relatively quickly, but do still
Very Cautious investors can take a long time to make up suffer from some feelings of regret when their investment
their mind on investment matters and will usually suffer decisions turn out badly.
from severe regret when their investment decisions turn
out badly.
Category 5 – Moderately Adventurous Investors
[Normalised score 57-67]
Category 2 – Cautious Investors Moderately Adventurous investors typically have moderate
[Normalised score 26-33] to high levels of investment knowledge and will usually
Cautious investors typically have low levels of knowledge keep up to date on investment issues. They will usually
about investment matters and limited interest in keeping be fairly experienced investors, who have used a range of
up to date with investment issues. They may have some investment products in the past.
limited experience of investment products, but will be more
In general, Moderately Adventurous investors are willing
familiar with bank accounts than riskier investments.
to take investment risk and understand that this is crucial
In general, cautious investors do not like to take risk with in terms of generating long-term return. They are willing
their investments. They would prefer to keep their money to take risk with a substantial proportion of their available
in the bank, but may be willing to invest in other types of assets.
investments if they are likely to be better for the longer term.
Moderately Adventurous investors will usually be able to
Cautious investors can take a relatively long time to make make up their minds on investment matters quite quickly.
up their mind on investment matters and can often suffer While they can suffer from regret when their investment
from regret when investment decisions turn out badly. decisions turn out badly, they are usually able to accept that
occasional poor outcomes are a necessary part of long-term
Category 3 – Moderately Cautious Investors investment.
[Normalised score 34-44]
Moderately Cautious investors typically have low to
moderate levels of knowledge about investment matters
and quite limited interest in keeping up to date with
investment issues. They may have some experience of
investment products, but will be more familiar with bank
accounts than riskier investments.
In general, moderately cautious investors are uncomfortable
taking risk with their investments, but can be willing to do
so to a limited extent. They realise that risky investments
are likely to be better for longer-term returns.
Moderately Cautious investors can take a relatively long time
to make up their mind on investment matters and may
suffer from regret when investment decisions turn out badly.

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Category 6 – Adventurous Investors Note: These profile descriptions are only illustrative.
[Normalised score 68-79] While they outline the common traits of individuals
Adventurous investors typically have high levels of with the relevant risk profile scores, every individual
investment knowledge and keep up to date on investment is different and their scores will be built up from
issues. They will usually be experienced investors, who have different combinations of responses to the questions
used a range on investment products in the past, and who in the risk attitude profiling questionnaire.
may take an active approach to managing their investments.
In general, Adventurous investors are happy to take ROBUSTNESS CHECKS
investment risk and understand that this is crucial in terms The risk profiling questionnaire has been designed to
of generating long-term return. They are willing to take risk be easy to understand and easy to use. Nonetheless, it
with most of their available assets. is important to take care that each user has been able
to complete the questionnaire without difficulty and
Adventurous investors will usually be able to make up their
been assigned an appropriate category. As a result, the
minds on investment matters quickly. While they can suffer
questionnaire has a number of robustness checks.
from regret when their investment decisions turn out badly,
they are able to accept that occasional poor outcomes are a It is reasonable for a client to select Neither Agree nor
necessary part of long-term investment. Disagree in relation to any or even all of the statements.
This would tend to indicate a neutral view towards the risk
issue being discussed. However, a client might also select
Category 7 – Very Adventurous Investors
that option if they were having difficulty understanding or
[Normalised score 80-100]
responding to the question. Where a client makes six or
Very Adventurous investors typically have very high levels
more Neither agree nor disagree responses, the robustness
of investment knowledge and a keen interest in investment
check flags to the adviser that there may be a problem that
matters. They have substantial amounts of investment
needs discussed with the client.
experience and will typically have been active in managing
their investment arrangements. Similarly, where a client has been assigned to a category that
would imply a significant proportion of risky investments
In general, Very Adventurous investors are looking for the
in the appropriate portfolio, but has made individual
highest possible return on their capital and are willing to
responses in the questionnaire indicating a preference for
take considerable amounts of risk to achieve this. They are
low risk investments or a discomfort with stockmarket
usually willing to take risk with all of their available assets.
investment, the robustness check flags this for discussion.
Very Adventurous investors often have firm views on
We do not expect many clients to be affected by these
investment and will make up their minds on investment
robustness checks, but they provide an important check
matters quickly. They do not suffer from regret to any great
and balance in the planning process.
extent and can accept occasional poor investment outcomes
without much difficulty. Any discussions around the robustness checks should be
documented by the adviser.

Best practice in using a risk profiling questionnaire

The questionnaire can play an important role in a well- • The adviser should discuss and agree the risk category
designed financial planning process. Best practice includes: with the investor. The category can be amended if
the discussion suggests another category is more
• Explaining risk, risk attitude, risk capacity, and need appropriate. A record of the discussion should be kept.
to take risk to the client.

• Ensuring the client has an investment horizon of at • The adviser then needs to discuss the investment
implications of the risk category, outlining potentially
least three years + and is prepared to contemplate at
suitable investment strategies.
least some loss of capital. If these conditions are not
met, a deposit-based strategy may be required. The
client needs to understand the implication in terms
• The investment discussion should consider capacity
to absorb potential losses. A simulation model can be
of low returns and possible loss of inflation-adjusted used to map out the range of possible outcomes from
purchasing power. the strategies. Again, this needs to be discussed, agreed
and documented.
• Once the investor has completed the questionnaire,
the adviser should review the score, the answers that
comprise it, and any robustness checks that have been
flagged.

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BIOGRAPHIES
The information reproduced in this leaflet and the risk
attitude profiling questionnaires were researched and
written by Dr Alistair Byrne and Professor David Blake.
Dr Alistair Byrne CFA is a Fellow of the Pensions Institute
at Cass Business School in London and an Associate of
the University of Edinburgh Business School. Professor
David Blake is the Director of the Pensions Institute and
Professor of Pensions Economics at Cass Business School
in London.

COPYRIGHT
The information reproduced in this leaflet and the risk
attitude profiling questionnaires are © A2Risk Limited
2014. Unauthorised copying, in any form, is prohibited.

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November 2018 511RF/7