Duty of Care - The need for evidencing reliable risk profiles

14 March 2024

Cash flowGatekeeperGatekeepersInvestmentsPortfoliosRegulationRisk

Expert: Paul Tinkler, Defaqto Facilitator: Paul Kearney, Director, Asset Risk Consultants (UK) Limited


1.Key topics include risk questionnaire design, number of risk bands, back testing risk assessments, role of cashflow modelling, and potential regulatory issues


A discussion among financial services professionals on risk profiling tools and processes used to assess clients' attitudes towards investment risk. There are no clear decisions, takeaways or numerical data provided.

Risk questionnaire design considerations discussed included optimal number of questions, neutral responses, weighting schemes, and client education needs. Preferences vary from no questionnaires to highly complex 60-question sets.

Opinions differed on the optimal number of risk bands, ranging from 3 to 10, to segment client risk tolerances. More bands allow finer segmentation but may exceed precision of client perspectives.

Discussion on back testing risk assessments by comparing realised portfolio volatility to expected bands over time – as well as the challenges in specifying clear volatility measures for comparison.

Key takeaways:

  • Integrate risk profiling with cashflow modelling to track clients' evolving situations
  • Don’t underestimate the collection of details needed for complex modelling