Talking about Risk does not have to be a Molotov Cocktail

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There are a variety of reasons that advisors feel like clients just don’t “get it” when it comes to risk. I’m going to name a few.

Do any of these sound familiar to you?

  • They want low risk but high returns
  • They don’t grasp the idea of uncertainty or loss until they feel it
  • They don’t understand long term investing
  • They have recency bias
  • They don’t get it that long term growth comes with short term volatility
  • They view short term volatility as a risk
  • Clients answer the exact same risk tolerance questionnaire differently each time they complete it
  • They don’t fully grasp the concept of risk when talk about interest rate risk and purchasing power risk
  • They think they can tolerate more risk than they really can (usually revealed when markets drop)

Ridiculous. And, explosively dangerous.

Why is this so hard? Does client risk tolerance have to be as incendiary as as Molotov cocktail?

We can’t change our clients’ behavioral tendencies. But what is well within our control is our ability to understand and respond to their attitudes towards risk, no matter what they may be. This is the only solution. Blaming or arguing with the client is a pointless conversation.

I’m so excited to have Hugh Massie, founder of DNA Behavior, on the show to discuss exactly that!

You will hear about:

  • What does risk mean? The difference between risk need, risk capacity, and a client’s natural level of risk.
  • That the words matter. Example: “risk tolerance” vs “loss aversion”
  • How advisors themselves may have a different risk profile than the client, and how this skews things
  • Behavioral biases and cognitive biases that people have
  • One of the most neglected topics- people’s spending patterns and the impact of that on risk
  • Why the risk tolerance questionnaire is situationally-biased and should not be relied upon on its own as a measurement of risk
  • How to adapt your communication style to serve the client on their terms– people hear risk differently depending upon their personality
  • Why you should consider using a team approach to make sure there is proper client-advisor match
  • Methods for integrating a behavioral assessment into your practice
  • What to do if two partners have a completely different risk measurement

Thanks for listening and please subscribe, rate, and review my podcast!



Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor.

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