SS$ Private wealth

Hi, I am a little confused about the risk tolerance. There are two past CFAI questions where I have a little conflict with their answers. 1. 2001 question for individual wealth management- Stephenson: Risk tolerance is above average according to the CFAI answer. I think it was average because it is specifically stated that he described it as “average” even though he has heavily invested in small-cap equities. Here, I got confused. According to him, he did not understand that small-cap investment is risky. His ignorance cannot qualify as above average tolerance. 2. Muellers in 1999 exam. They preferred “conservative growth investments with minimum volatility”. But a third of their actual portfolio was invested in stock of Mrs. Mueller’s company stock which had uncertain future. Here, the CFAI’s answer says that willingness was below average and ability was above average. I got both of these wrong. My reasoning was: 1. Willingness was above average because the portfolio had risky position in concentrated risky stock. 2. Ability was average because of the size of the portfolio was small. Can anybody give me correct reasoning? Thanks,

anybody take a shot at this please

derswap07 Wrote: ------------------------------------------------------- > anybody take a shot at this please i have not done the past exam questions yet so i wanted to save these… however ,the muellers look like the same question from cfa books that i have already done. i do not have this book with me so let me know if i’m recalling incorrectly. re: the muellers: willingness: though they had this concentrated position, i don’t think they even understood the risk associated with having such a large position in one stock. so they were unknowingly taking on this risk. i think it may have also been the wife’s company stock so maybe familiarity or inability to sell the stock (restricted from doing so?) was involved here as well. either way, their willingness is focused on their preference of a conservative portfolio w/ minimum vol. if their portfolio is out of sync with their willingness, it’s probably the advisor’s job to point that out. on ability: my memory is shot, but i think i remember their salaries covering all of their current expenses and them having very little in the way of liquidity needs. So their income needs from their investments was small for the size of the portfolio. and weren’t they also going to receive a big inheritance? although they do not want to included, it is money they will have access to and that does increase their ability to take risk… check out the cfai text explanation in that book. they do a better job than me in explaining this.