• subs-bellGet the latest news! Subscribe to the ifa bulletin

Advisers must better address couple risk tolerance

When providing advice to couples, financial advisers must consider the risk preferences of each partner or risk “ending up in hot water” with the more conservative partner, according to FinaMetrica.

The risk profiling firm said financial advisers must consider the risk tolerance of each person in developing a financial plan and deciding on suitable investments.

FinaMetrica co-founder Paul Resnik said each partner should complete their own risk tolerance test.
“Any differences need to be resolved before a financial plan can be finalised, otherwise problems could arise in the adviser relationship, as well as the marital relationship,” he said.

“In order to act in the best interest of the couple, and each person within it, the adviser must explain the investment options, particularly what might go wrong and the possible consequences for their future finances.”

FinaMetrica research indicates female partners generally tend to be the more conservative, with men having a higher tolerance for financial risk in 66 per cent of couples.

Where there is a material difference in their risk tolerance levels, in 84 per cent of cases it is the man who is the risk taker, according to FinaMetrica data.

Mr Resnik said where a mismatch in risk tolerance exists, it could be resolved in several ways.

“If one person takes primary responsibility for making financial decisions, and often it is the man, the couple could agree to proceed according to that person’s risk tolerance or they could choose the lesser risk tolerance of the two, or they could average,” he said.

“However, in any situation that involves the couple taking more risk than the less risk tolerant of the two would prefer, it is important to make sure both members are aware of this and have signed off on their understanding.”