Kol Birke, a financial behavior specialist with the independent broker/dealer Commonwealth Financial Network, suggests that advisors develop a risk score for clients after discussing four topics with them: risk tolerance, goals, behavior, and investment knowledge. (In the case of a client couple, I would advise that you query each spouse separately about these issues.)
1. Risk tolerance. Birke feels that the more pertinent these questions are to the client’s situation, the more reliable the results will be. A sample:
If your goal was $100,000 per year for retirement, which range of possible outcomes would you choose?
o Worst case $60k – Best case $90k
o Worst case $80k – Best case $150k
o Worst case $50k – Best case $250k
2. Goals. By learning what your clients want to achieve, you can determine their risk capacity (how much they can afford to risk). If an important goal is underfunded, you might ask: