Willingness v. ability to take risk

If there is a conflict between willingness and ability to take risk which should dominate?


That would be my instinct too. But just noticed Schwesser in the professor’s note indicates you should stick with willingness. Any thoughts?

you stick with whichever one is more conservative… i read that somewhere…can’t remember where…

yes stick with willingness and educate the client …

I would think if you have a long time horizon you can go with willingness, but it liquidity is significantly constrained maybe you can’t . . . . its an endless circle of do’s, don’ts, cans, and cant’s.

From Page 307 of Book 3. “Professor’s Note: You will notice that when the investor’s ability and willingness to assume risk are in conflict, the curriculum always recommends designing portfolios consistent with the willingness to assume risk. The only exception is when the willingness to assume risk jeapordizes the ability to acheive portfolio objectives.”

willingness overrules with schweser, on the sample exam 2 for CFAI they have a question where the willingness and ability conflicted and the answer was ability overruled. it depends on the time frame and if the willingness/ability put a restraint on a proper portfolio construction. hope this helps. if you ask my compliance officer he will tell you to drop that person as a client, didn’t see that as an answer though.

This is my most hated subject (IPS)

it’s the only subject i truly disagree with certain answers

Porter is right up there though.

THE DEFINITIVE ANSWER: 2006 Exam Question 91 (this is public info), the answer key from CFAI states: “…When an investor’s willingness to accept risk exceeds the ability to do so, ability prudently places a limit on the amount of risk the investor should assume.” In this question, the investor has a high willingness, low ability. The correct answer was that he has below average risk tolerance. I am going with CFAI, screw Schweser.

For me, Porter No1. IPS No.2, Ethics No.3. I am so close to 90% so many times without these three bad boys.

I just read the IPS section in the CFAi books… Stupid question - but after reading the required readings one would expect to easily be able to answer questions, right? Wrong. The IPS q’s like ethics are very subjective and control the marks. Example, in mock 2 – 30% tax rate is Significant. Show me where in the books it gives ranges on what is and what is not significant. Also, one event can fall into 2 constraints. In mock 2 there was NO liquidity constraint but there was a unique constraint involving liquidity…one can definitely argue this.