Understanding Risk from a Fiduciary and Behavioral Standpoint

Blaine Aikin, AIFA®, CFP®, CFA®, CEO of fi360

Warren Cormier, CEO of Boston Research Technologies

August 12, 2015

One of the most important factors when building an investment policy is understanding and incorporating risk into the client portfolio. To do this, fiduciaries must consider the factors influencing portfolio risk, understand the risk tolerance of the investor(s), address large loss scenarios, and plan for liquidity needs. Ultimately, fiduciaries must find a level of risk that is necessary to achieve the investment goals and tolerable to the investor(s).

Measuring a person’s aversion to risk is obviously very complicated and typically done inaccurately.   Measurement is made even more complex because people are not clear on the definition of risk, particularly in view of the reality that there are many types of risk.  The problem with todays' risk tolerance questionnaires is the consequences of risk are not specifically described.  Furthermore, risk is treated as an abstraction and is not personalized.  Even more importantly, probability of gains and losses are treated equally.

In this session, fi360’s Blaine Aikin will present on understanding and incorporating risk into an investment portfolio from a fiduciary perspective, followed by Boston Research Technologies’ Warren Cormier, who will share his success using a behaviorally-based risk assessment questionnaire that addresses the weaknesses of traditional risk tolerance questionnaires.