on the 2008 am it asks for risk tolerance and i stated risk objective that got me zero marks but then i thought when constructing IPS’s we’re more concerned about risk tolerance no?
It seems like risk tolerance is directed to institutional IPS. I’m somewhat confused on whether we need to state ability and willingness for institutional or whether we can state just the tolerance by itself. I think risk tolerance would be okay for individual as sum of ability and willingness…
There are two objectives and five constraints. Risk objective being one of those. The main component of the risk objective is to figure out the risk tolerance of the individual by analyzing their willingness and abilities to take risk.
BB is there a good structure approach to writing down the steps in analyzing risk for the individual?
it seems the best way is to: assess the clients willingness to take risk and support it assess the clients ability to take risd and support it then reconcille the two. Rule of thumb is take the lower of the two. if willingness < ability go with willingness if willingness > ability preach to client he should go with ability and educate him on why.
Are you referring to the institutional question? I missed that one, because I was thinking in individual IPS terms, of ability and tolerance being added together. But in that case it really wanted a quantitative answer, as opposed to “moderate” or some other relative measure. To the overall question, the LOS (for individual) is: Discuss how source of wealth, measure of wealth, and stage of life affect individual investor’s risk tolerance. Risk objective then seems to distinguish between the ability and risk that make up that Risk tolerance.