Behavioural Finance Consulting

Advisory Services

Key Elements in Investment Suitability

Assigning an appropriate portfolio to a client requires a deep understanding of their financial goals, personal preferences, and financial capacity. For accurate investment suitability assessment, the risk assessment framework must consider four critical dimensions: financial capacity (quantitative dimension), psychological tolerance to risk (qualitative dimension), financial knowledge and experience (cognitive dimension), and ESG values (values-based dimension). These dimensions offer a robust foundation for structuring investment recommendations that align not only with the client’s financial needs but also with their psychological comfort and personal values. Integrating these perspectives into suitability assessments fosters informed decision-making, enhances client satisfaction, and supports comprehensive risk management over time.

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Investment Suitability and Portfolio Reporting – Part 2

Investment suitability is strongly influenced by how portfolio information is presented. Variations in content and format can shape investors’ risk perception and tolerance, potentially leading to skewed assessments and suboptimal investment choices. Discrepancies in presenting returns (net vs. cumulative, percentages vs. monetary), risk ranking, performance order, and format (tables vs. graphs) can alter investor judgement, impacting their understanding of risk and potential gains. A transparent, consistent presentation framework that minimises cognitive biases and supports informed decision-making is essential to align investments with investors’ true risk preferences and financial goals.

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Investment Suitability and Portfolio Reporting – Part 1

Investment suitability depends on consistent, transparent portfolio reporting. Variations in content, such as differing amounts, portfolio options, time horizons, and risk periods, can lead to misaligned risk perceptions and suboptimal choices. By standardising portfolio presentation and addressing cognitive biases, financial firms empower investors to make decisions aligned with their true preferences and tolerance for risk.

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