Risks Understood

Risks Understood is a Driver of Elevation Goal 3: Safeguarding clients’ best interests, mitigating risk

Data based on responses to the following question, asked in the Verified Client review form

“How confident are you that you understand the potential disadvantages of [adviser]’s recommendations?”

Possible responses
  1. The potential disadvantages were not pointed out or explained to me
  2. I have some understanding but would have preferred more clarity before making my decision
  3. I have enough understanding to be confident in my decision
  4. I couldn’t be more confident I understand the potential disadvantages

Risks Understood Score

Proportion of respondents answering "I have some understanding but would have preferred more clarity before making my decision", “I have enough understanding to be confident in my decision” or “I couldn’t be more confident I understand the potential disadvantages”

Distribution of responses to Risks Understood 

Clients understanding of risk was a key risk area arising from our qualitative research with advice firms and advisers. 

How to improve your score:

Visualise potential issues
Connect to emotions. Ask your client to visualise what would happen if something didn’t go according to plan. How would they feel? By getting them to visualise potential issues now, you’ll create an emotional reaction.You can judge the strength of the emotion, which may mean you need to revisit their risk profile.

Connect to events. To help them visualise, you can use events your client will remember as examples of what could happen in the future:
2000 – Dot-com bubble 
2008 – Credit crunch
2018 – Crypto crash

Ask how it would affect them if something like this happened again and what impact it would have on their plan. By broaching these issues now your client will register this outcome as a possibility, making it easier to come to terms with things if it does happen.
Include risk in communications
Follow up. Include details of your conversation about risk and potential disadvantages in follow up communications to your client. By replaying the risks closely after your meeting, this reinforces the concept you’ve discussed and helps your client to feel that they understand the risks fully.
Validate
 Repeat back. Get your client to explain the potential disadvantages and risks back to you. This confirms that they understand and gives them the chance to ask questions.

Examples & Variables. Include a variable, such as a market correction, and how this would affect the plan and what would happen in that situation. By understanding how a risk event would affect, and potentially change, the plan, your client will have a practical understanding of the risks they are taking.

Remember, you need to follow your company’s compliance approved process when explaining risk. However, getting the client to visualise potential issues can be useful to gauge their reaction and create this as a possibility in their minds, reducing the shock if the risk does occur. Validating understanding will bring out any questions they may have and give the chance to explain again if they don’t understand. A clear understanding of risk also boosts client advocacy so it’s worth investing the time in this area!


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