There is nothing more critical to the accuracy and effectiveness of a Riskalyze Risk Questionnaire than capturing accurate and “real” dollar amounts for the “Investment Amount” and the “Devastation Amount.” Completing a questionnaire in “someone else’s shoes” simply does not work.
It’s critical for the Investment Amount a client enters in any Riskalyze questionnaire to be a meaningful amount of money for them. If someone with a $2 million net worth uses $10,000 as an investment amount, it’s almost guaranteed that they will end up with a significantly higher result than they would when entering a meaningful amount of money.
The Devastation Amount (captured in the Detailed Questionnaire) is equally important. This should represent completely unacceptable, and devastating, loss in portfolio value. An “acceptable loss” will not do. Sustaining a devastating loss would force a client to take painful or unexpected actions such as radically altering their monthly spending, reducing their housing costs, or selling major belongings because they feel like their portfolio has little chance to recover.
(Most clients innately understand their devastation amount, but others may struggle to define it. One advisor suggested this simple question: “How far would your portfolio have to fall before you’d fire me as your advisor?” That may be a good starting point for devastation if nothing else.)
Real Consequences and Trade-Offs
Establishing accurate dollar amounts ensures that each question will incorporate real consequences and tradeoffs to the client — both good and bad. “If I take that risk and fail, that will mean no college for Suzie.” Or “If I take that risk and succeed that means I could pay off the house early.” Or “I would take a sure thing over potentially being forced to move in with my in-laws.”
These are the types of trade-offs and soul searching each question should inspire. As you can see, if the amounts in question are not relevant, the answers simply won’t translate into meaningful data.
When an advisor is helping a client answer the questionnaire, they should look to provide solid guidance, but resist the urge to answer for them.
An advisor might reframe a question like this:
“So, would you take a guaranteed return of 5%, or would you put Suzie’s college fund on the line for a 50/50 chance of paying off your mortgage?” The advisor should fight the urge to make a recommendation, and lean on the client to answer questions for themselves.
Ultimately, the goal is to understand a client’s threshold for pain, so we can build a portfolio unlikely to trigger the “ripcord” mentality when markets are pulling back. Using relevant dollar amounts in the questionnaire and ensuring clients answer questions themselves are critical to achieving that goal, and getting real buy-in from the client on questionnaire results.
PRO TIP: The most successful advisors understand the methodology behind the questionnaire and guide their clients through it. Check out our Riskalyze Academy Lesson on Guiding a Client Through the Detailed Questionnaire for an interactive tour!