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Relations (1)
related 2.00 — strongly supporting 3 facts
Financial planners are responsible for assessing a client's risk tolerance to guide investment decisions, as evidenced by their role in implementing strategies based on risk profiles [1], matching risk tolerance to asset allocation [2], and assisting clients in identifying emotional reactions to risk [3].
Facts (3)
Sources
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org 3 facts
procedureTo avoid risk-taking bias and the anchoring effect, financial planners can assist clients by assessing their level of risk tolerance and their emotional reactions to perceived risk across a wide variety of securities or investments.
procedureTo mitigate the negative impact of worry on investment decisions, financial planners should match a client’s risk tolerance with a pre-determined asset allocation strategy. If a client loses sleep due to anxiety about common stocks, planners should advise them to own more conservative securities to hold a less risky portfolio.
procedureTo mitigate the negative effects of overconfidence and status quo bias, financial planners should implement a strategy based on a proper risk tolerance profile, a diversified asset allocation strategy using mutual funds and exchange-traded funds, and yearly portfolio rebalancing.