We hope it’s chips, it’s chips…

We hope its chips, it’s chips…

What do chips have to do with understanding your client’s attitude to risk?  Quite a bit actually, especially when you throw a salad into the equation.  Let’s start by talking about risk profilers.

The problem with risk profilers

Risk profilers – what a wonderful invention.  Back in the day, it was all about 3 little questions.  “Are you high risk, medium risk or low risk?”  You can imagine how many problems that led to!  And now we have amazingly clever electronic questionnaires that change and adapt, depending on the answer you give – they can even recognise contradictions and can prompt you to change your answers.  (Genius, you might think).

So, if you say you want a high return but then answer another question that implies you can’t handle risk, it will pick it up and say to you “you can’t have that – you need to rethink one of your answers.”  So your client will change one of their answers, allowing them to move on to the next question.  (Still thinking how clever this all is…?).

The result?  Questionnaire responses that are beautifully aligned and look like they’ve been generated by a computer.  And that’s because they have.

The fact is, the client is still the same person – they still want a high return for zero risk, they’ve just changed their answer because they were forced to.  But that’s not what it’s about.

It’s not about matching someone to a portfolio

Risk profiling is not about making your client fit into a neat box.  It’s about the beginning of a very real, human conversation.  It’s about starting to understand why your client’s brain thinks the way it thinks.  It’s about understanding their relationship between risk and reward – the laws of investment physics.

Remember, your job is to add value.  You are there to help them to act in a healthier, more balanced way so that they don’t get themselves into a mess by cashing in their investments in a blind panic during a downturn. It’s about helping them to understand the balance between return and risk so that they are not in perpetual turmoil over their daily investment valuations, or the fact that higher returns mean they really need a higher equity portfolio.

Questionnaires just can’t get to the bottom of any of this stuff.

If you fancy chips, picking a salad won’t stop you wanting chips…

Let’s imagine a nice, neat questionnaire that very cleverly highlights your contradictions.  Q1 “do you want to be fit and healthy?” – pretty sure the answer would just be “yes”.  And so we move on to Q2 “what do you want for tea, chips or salad?”  and you answer chips…..

Now, the questionnaire can clearly see that chips won’t make you fit and healthy, so it highlights this important contradiction for you, “I’m sorry, you can’t answer ‘chips’ because you said you wanted to be fit and healthy.  Would you like to change your answer to salad?”  So you pick salad.  And then when you go home, what do you pick for tea?  Chips.

Questionnaires can’t capture real life

Just because you’re forced to change your answer to salad on the questionnaire, doesn’t mean you stopped wanting chips!  What you answer on a questionnaire is very different to real life.

And if that was your client, you haven’t really helped them – have you?  All that’s happened is that the computer has ‘created’ a nice, neat set of answers that all make sense – showing no contradictions.  Very compliancy.  But it’s not very realistic.  And more importantly, it hasn’t dealt with the underlying issue – they want to be fit and healthy and eat chips.  They want a high return for low risk.

In a year’s time, your client is still going to be the same person.  When they do that questionnaire again, they will still give the same answer – high return for low risk.  And once again, the computer will flag up the contradictions and force them to change their answer.  It will happen over and over again.  How is that helping them?  Or you, for that matter?

You need to treat risk profiling as a human issue

To really understand your client, and to really delve deep and explore their attitude to risk, you need to be eyeball to eyeball.

You need to be able to get to the bottom of why they feel the way they do.  Is it because they genuinely can’t see that they are contradicting themselves? Is it because they just don’t want to see it?  Is it because they don’t really understand the correlation between return and risk?  We need to understand why.

Understand the emotions that drive your client’s attitude to risk

Our decisions are almost always based on emotion.  It’s what drives us to do things, think things and feel things. Your client’s attitude to risk is no different.  It may be a gut feeling – but it’ll be based on emotion.  They may be belligerent about risk and return – but it’ll be based on emotion.

Can a computer questionnaire pick all this up?  Can it understand emotion?  Of course not!  They can force you to give an answer that makes sense, but they can’t understand why you contradicted yourself in the first place.  And that’s the bit you need to fix.

That’s why great coaching is the key

Great coaching is about fixing these crucial things.  It is exactly what you should be doing, as a great coach or planner.  If you can fix these contradictions then you can fix everything – including all of the bad outcomes that are potentially around the corner if your client continues to feel these contradictions inside.

And, if you can’t fix it, at least you’ll be able to truly understand where it’s coming from – what’s driving your client’s emotions and needs – and that’s the first, important step.

Right, I don’t know about you, but I’m having chips for tea.

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