Investor risk profiling: an enhanced behavioral finance perspective and technique for identifying client risk profiles

The ramifications of financial crises and the complex structures of financial products have enabled the hand of regulation to extend beyond the security of investors and into the suitability of the investments proposed by financial institutions and advisors. This process, assessed through a risk profiling questionnaire, carries an opportunity to choose the optimal financial product based on the risk tolerance of the investor and thereafter retain the clients and help their investments grow. In this paper, we argue that the traditional risk profiling questionnaire requires an overhaul through the lens of behavioral finance which offers a more rigorous understanding of the risk appetite of the investor. Through independent samples t test, we measure the performance of two groups of investors over time; one with behavioral finance questions and one offered the traditional risk profiling questionnaire. A Pearson Chi Square test is also conducted to assess the relationship between the risk profile rating and the financial return of the investor groups. The methodology is supported with a review of the yield performance and client retention of the group of investors who had answered behavioral finance questions. Moreover, a qualitative approach was also adopted whereby interviews with financial advisors were conducted to determine their perspectives. Our findings indicate a better performance through financial returns for investors who answered behavioral finance questions and a higher retention for that group of investors with their financial advisor(s). These findings reinforce our hypothesis on the inclusion of behavioral finance questions into risk profiling and its impact on the suitability of investments. The study proposes recommendations to improve the suitability of investments process through risk profiling. The study also proposes further research to be conducted in the field of behavioral finance and risk, as a solution to the limitations offered by traditional financial behavior theories

Name dc:type.qualificationname

dba

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

University of Wales Trinity Saint David

Year dc:date.issued

2023

Author dc:creator

• Kattoura, Salem

• HD61 Rheoli Risg
• HG Cyllid

Dc Identifier Grantnumber

UWTSD

OAI identifier oai:identifier

oai:repository.uwtsd.ac.uk:2498