Hey all, quick question regarding SS4 wealth management According to Schwesser, you consider a clients abilty to take risk, and their willingness to take risk, and their risk tolerance should be the lower of the two. This works when doing the Schwesser q’s However, i was doing the EOCQ for this section and had a few wrong. I forget the exact question, but essentially the client spoke of being risk averse, and scared of sustaining any loss. However, they had a fairly large porfolio and thus an abilty to take some risk. Therefore the answer as an “Average” risk tolerance. My answer was Below Average, because their willingness is Low. ie the lower of the two. Any thoughts on this? I’m worried that this will be subjective on the exam. Thanks
Schweser addressed this somewhere last year. When financial assets are huge and the client is risk averse they averaged the two tolerances and recommended education to reconcile the difference. From what I recall this was the only situation where the lower of the two didn’t apply.
I have no Rick tolerance. That guy is a jerk.
You haven’t met Tom yet.
If client has very high ability to tolerate risk, but has below average willingness to tolerate risk, it calls for client education on the benefits of assuming risks to increasing returns.