A key benefit of our ATRQ is the regular updates we make to ensure the tool incorporates our best thinking. Here we outline the 2018 review.
We update our questionnaires and scoring methodology every two years to reflect our ongoing research, feedback from clients and quantitative analysis of risk attitudes in the UK population. As in prior updates, we based our quantitative analysis on a survey of around 2,000 people in the UK polled by YouGov. This year’s update was also informed by the review of the leading risk profiling tools by former FCA official Rory Percival.
Our 2018 update contains:
• A new basis for our risk attitude survey, excluding people on low incomes from the calibration
• Adjustments to three statements in the questionnaire to improve clarity
• New robustness checks that flag potentially problematic patterns of responses
• Improved and clearer documentation
New research sample
Previously we have analysed our questionnaire using a sample of around 2,000 people representative of the UK adult population, covering all income levels and employment statuses. This year we have switched to a sample with personal incomes above £25,000 which is more consistent with the profile of financial services customers. This sample is slightly more risk tolerant than previous samples.
We’ve made some changes to ensure our statements are easy to understand.
• We now include the wording “investment funds” in statements that ask about investing experience as fewer investors now own equities or bonds directly
• We’ve replaced the jargon “volatility” when talking about investment performance, with the more everyday “ups and downs”
• We tweaked one question that implied lump sum investments, because many customers actually sign up for regular contributions. (Thanks to the client who spotted that one.)
Statements that are not understood by customers because they are poorly worded, use jargon, or require financial knowledge will not measure an investors’ attitude to risk accurately. We asked respondents how easy the statements were to understand – 83% agreed or strongly agreed that the 12 statements are clear and easy to understand. Our questionnaire is shorter than many of our competitors, but still achieves a Cronbach’s alpha of 0.85; which in psychometric terms indicates good reliability. The questionnaire typically takes just 5 minutes to complete.
We’ve changed the name of the middle risk attitude category from ‘Balanced’ to ‘Average’ as balanced is typically used to refer to the portfolio of bonds and equities and shouldn’t be confused with the actual portfolio requirements of an investor with average risk attitude.
We’ve implemented additional checks for potentially problematic combinations of responses. For example, if respondents are scored as ‘Cautious’ or ‘Very Cautious’ advisers are flagged to ask if the customer is comfortable taking any investment risk at all, or should be considering a ‘no risk’ option such as bank deposits.
Full information about the update including technical changes to scoring algorithms is contained in update packs sent to our clients.