Risk Tolerance Questionnaire Template to Give to Your Clients

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Smart Asset
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Risk tolerance questionnaires can help advisors better understand what their clients need when developing a financial plan. Clients may complete this questionnaire during the onboarding process and the answers they provide can inform your decision-making when offering financial advice. Putting together a template that organizes risk tolerance questions by topic can make it easier to analyze the information you collect.

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Why Advisors Should Use Risk Tolerance Questionnaires

Assessing risk is an integral part of what you do as an advisor. You need to understand the degree of risk a client is willing to take and the amount of risk they need to take to reach their financial goals.

Risk tolerance questionnaires allow you to gauge a client’s comfort with risk and their thought processes when it comes to investing and money management. They can also help you gauge their overall knowledge of investing and risk.

The answers a client provides can depend on a variety of factors, including their:

  • Age
  • Income
  • Short and long-term goals
  • Financial and non-financial goals
  • Marital and family status

A questionnaire alone isn’t the only tool you’ll need to develop a financial strategy for your clients. You’ll also need to spend some time talking over their needs and goals. But their answers can give you a framework for deciding how to approach those discussions.

Risk Tolerance Questionnaire Template for Financial Advisors

A risk tolerance questionnaire doesn’t need to be overly complicated. Asking 10 questions or less is typically enough to get a sense of a client’s risk tolerance, without overwhelming. The key is knowing the right questions to include.

There are plenty of examples of risk tolerance questionnaires available online. The following template is one that you can use as-is or adapt to fit the needs of your client base.

Section I: Time Horizon

1. Where are you in the investor life cycle?

  • Early accumulation phase (>20 years to retirement)
  • Mid-accumulation phase (10-20 years to retirement)
  • Pre-retirement (<10 years to retirement)
  • Retirement (10-20 years after retiring)
  • Late retirement (20+ years after retiring)

2. How long do you need funds to last once you begin making withdrawals from your investment accounts?

  • Less than two years
  • 2 years
  • 3 to 5 years
  • 6 to 8 years
  • 9 to 10 years
  • 11 years or more

Section II: Risk Tolerance/Comfort

3. What is your level of investment knowledge?

  • None
  • Low
  • Medium
  • High

4. Which statement do you identify with most?

  • I’m comfortable earning lower returns if it means taking less risk.
  • I’m comfortable taking a moderate amount of risk to earn moderate returns.
  • I’m comfortable taking more risk to earn higher returns.

5. What is your primary goal for investing? (Circle one)

  • Avoiding loss, even if it means accepting lower returns
  • Hedging against inflation at risk levels I’m comfortable with
  • Increasing portfolio value at a steady pace
  • Earning the highest returns possible, regardless of risk

6. Increasing market volatility results in a 20% dip in your portfolio. How do you proceed?

  • Immediately shift to a more conservative asset allocation to minimize the potential for additional losses.
  • Wait a few months to see if the market shows signs of recovery before making a pivot.
  • Buy more shares while prices are low.
  • Do nothing.

7. Which risk/reward profile is most attractive to you, assuming a five-year investment horizon?

  • Portfolio #1: Potential gain of 20%/potential loss of 8%
  • Portfolio #2: Potential gain of 25%/potential loss of 13%
  • Portfolio #3: Potential gain of 30%/potential loss of 21%
  • Portfolio #4: Potential gain of 33%/potential loss of 27%
  • Portfolio #5: Potential gain of 37%/potential loss of 34%

8. What are you most likely to focus on when monitoring your portfolio?

  • Investments that are underperforming
  • Investments that are overperforming
  • Overall portfolio performance (short-term)
  • Overall portfolio performance (long-term)

9. Which is more important to you?

  • Generating consistent income from your investments, with relatively minimal risk
  • Growing your portfolio’s value while also generating income
  • Growth only

10. Which scenario worries you the most?

  • Loss of principal
  • Investment returns that don’t keep pace with inflation
  • Underperformance that leads to portfolio shortfalls
  • Mistiming the market

Tips for Creating a Risk Tolerance Questionnaire

There’s no right or wrong way to format a risk tolerance questionnaire. You might use a framework similar to the one above or create your own.

Here are a few things to keep in mind as you develop your questionnaire:

  • Decide what information you’re seeking from your clients before shaping your questions.
  • Use concrete examples that your client base can easily relate to.
  • Determine how you’ll categorize risk tolerance based on how your clients answer, i.e., conservative, moderately conservative, moderate, moderately aggressive, aggressive).
  • Create a scoring system that allows clients to determine their risk tolerance category, based on how they answer.
  • Consider incorporating graphics or making your questionnaire interactive, rather than static, to encourage engagement.

There are software applications that can simplify the process of creating a risk tolerance questionnaire that’s compliant and addresses the most important questions you’d like to ask. When comparing risk tolerance software, consider the full range of features included, what you’ll pay and how easily the software integrates with the rest of your tech stack.

Frequently Asked Questions

What is the purpose of a risk tolerance questionnaire?

Risk tolerance questionnaires are essentially learning tools advisors can use to better understand how comfortable their clients are with risk. A risk tolerance questionnaire can also be useful for determining how an investor’s comfort level aligns with their risk capacity.

How do advisors measure risk tolerance?

Financial advisors measure risk tolerance using a client’s time horizon and goals for investing. Having clients fill out a risk tolerance questionnaire can give advisors a better idea of where they are financially, where they eventually want to end up and how much risk they’re willing to take to get there.

What are the different types of risk tolerance?

Risk tolerance operates on a range, with the most conservative investors at one end and the most aggressive at the other. In the middle, you have investors who prefer a moderate approach that evenly balances risk and reward, along with investors who have moderately conservative or moderately aggressive leanings.

Bottom Line

Risk tolerance questionnaires are a helpful tool you can use to get to know your clients better. Understanding where your clients are on the risk scale now and as they move through the investing life cycle can help you meet their needs more effectively.

Tips for Growing Your Advisory Business

  • Getting more eyes on your business can help you acquire new clients and how you approach marketing can make a difference. At a minimum, it’s important to have a professional website but you can go a step further and leverage social media or digital ads to improve visibility. If you’re looking for a streamlined marketing solution, you may consider partnering with a lead generation service. SmartAsset AMP (Advisor Marketing Platform) is our holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
  • Risk tolerance questionnaires are just one type of survey you might send to your clients. You may also choose to send them a survey asking for feedback on how satisfied they are with the services you offer. Asking clients to share their thoughts sends the signal that you value their opinions and more importantly, the feedback shared can clue you in to the areas where you may need to improve to better serve them.

Article by Rebecca Lake, Smart Asset