Your questions answered

At A2Risk, we have developed and refined our risk profiling tools continuously since our first iteration more than 18 years ago.

During that time, the financial services and regulatory landscapes have changed dramatically – and we have worked hard to stay ahead of the changes.

Here we address some of the most commonly asked questions about our products and risk profiling in general. For more detail, you can read our latest insights on our blog, or if your question isn’t covered here, please get in touch directly.

The Attitude to Risk Questionnaires (ATRQ) assess the three components of an individual’s risk tolerance. This provides you with a robust base upon which to help your clients build a financial plan or select appropriate products.

The ATRQ uses three different tools, one for each component of risk tolerance.

The first measures attitude to risk. This assesses the client’s psychological willingness to take risk.

The second tool assesses the client’s need to take risk. This explores their time horizon and investment goals to understand what they are trying to achieve.

The third component is capacity for loss, which describes the client’s ability to cope if investments fall in price or they experience financial losses. The tool assesses the client’s investment time horizon along with other information such as income, their existing assets, and any financial liabilities they may have.

Each of the three tools operate separately. This means that financial advisers can use the ATRQ system to assess their clients’ attitude to risk and capacity for loss, and combine this with their own cashflow tools to measure their needs.

For more information about how different kinds of companies use our tools, see our dedicated pages for financial advisers, product providers, and fintechs.

Our research and regular real-world testing since 2006 has shown us that there are four elements to a client’s attitude to risk. At A2Risk, we have developed a test to measure these four elements. Known as a psychometric test, this series of questions allows our system to measure things that individual clients may struggle to put into words.

Investment knowledge: How much does your client understand about financial and investment-related matters? We generally find that more knowledgeable clients are more tolerant of investment risk.

Overall comfort with risk: Outside of investing, how does your client approach risk?

Investment preferences: These questions relate to how clients perceive different types of investment. Do they see listed equities as too risky, for example, or do they believe cash is the safest place to put their money?

Regret: How likely is your client to lament a decision? We generally find that clients who are prone to regret are less tolerant of investment risk.

Over more than 18 years of using and enhancing our risk profiling tools, we have found that all kinds of investors can be assessed effectively this way.

A2Risk’s tools and questionnaires are regularly tested against a sample group of the UK population. We work with YouGov, a leading national survey body, to test our questions and develop a ‘control’ to ensure the tools are robust, up to date, and understandable.

An individual’s attitude to risk will change throughout their life as their circumstances change. This is most evident between the accumulation stage – saving for a pension, for example – and the decumulation stage, or drawing down from their pension savings.

To help you help your clients make this transition effectively, we have developed two distinct versions of the ATRQ for each type of client. We have also built a third version, the Retirement Income Solver, to help clients choose between taking an annuity, moving to drawdown, or other at-retirement options.

More information about the different versions of our risk questionnaire and how they can be used is available here. Alternatively, you can contact us to explore how the ATRQ system can help your clients.

We have developed a robust, scientifically tested set of 12 questions to assess an individual’s attitude to risk.

This number, we believe is the ‘sweet spot’ that allows our system to collect sufficient information without overwhelming the person answering the questions. Research into psychometric testing such as our questionnaires has shown this length to be ideal and fits with a realistic expectation of the average person’s attention span.

Shorter and longer questionnaires are available and used by some companies. However, with shorter questionnaires the importance of each question is increased, meaning an error can dramatically skew the result and making it useless.

Longer questionnaires can go into significant detail, but often this is not necessary. In addition, people can become bored with filling in longer questionnaires, meaning the later answers can be less reliable – again skewing the results and damaging their usefulness.

Our Attitude to Risk Questionnaires are designed based on the established science of psychometrics. This area is concerned with measuring psychological aspects of individuals – such as their attitude to risk – and making these abstract ideas easier to understand and act upon.

All our questions have been tested and validated using a ‘control’ group sample of the UK population. This was developed in partnership with national survey company YouGov, which collected responses from more than 2,000 people representative of the UK adult population.

We assess the average ATRQ score from this control group and the distribution of responses against anonymised real-world data from our questionnaires to ensure the tests remain robust.

It is vital that our questions are not complicated and can be understood by the individuals that answer them, to ensure we get accurate and useful results. We avoid complex investment scenarios, and do not require users to make calculations or work with mathematical concepts such as percentages. We seek to avoid vague questions or concepts with which most people would be unfamiliar.

We conduct regular validation surveys to check this, and have found that 73% agreed or strongly agreed that our 12 questions were easy to understand. Just 9% disagreed or strongly disagreed.

Using these validation tests, our work with YouGov, and extensive client feedback, we have carefully designed and refined our risk profiler since 2006 to ensure the tools remain relevant and understandable to all users.

This demonstrates that the outcomes from our questionnaires are clear and straightforward, and investors can act upon them with confidence.

We regularly test and validate our results using data from YouGov, the national survey company. YouGov surveys a ‘control’ group of 2,000 adults, representative of the UK population, to ensure our questionnaires are providing clear and useful results and that the questions remain relevant and understandable.

ATRQ provides up to ten different personality categories that can be matched to risk weighted portfolios ranging from ‘very cautious’ to ‘very adventurous’ but we advise clients to distinguish between five or seven personalities in practice.

The Attitude to Risk Questionnaire can be used by anyone who buys a licence from us. This can then be coded into your applications for use as needed. We can also help you develop web-based applications if needed – just drop us a line.

We have specifically designed the questionnaires to be easy to use for the broadest range of clients, so no prior investment or financial knowledge is necessary. We have minimised the use of financial jargon and we avoid complex investment questions or scenarios.

Instead, we focus on assessing broader aspects of an individual’s personality and perceptions to understand how they view saving and investing.

For more detail about the ATRQ, explore The Risk Questionnaire page.

The output of the Attitude to Risk Questionnaire is designed to be used alongside other work by financial advisers, product providers or fintechs to understand their clients.

Advisers should use the ATRQ as one of several inputs when advising on portfolio construction and investment selection. You should also carefully consider a client’s need for risk – what they are trying to achieve and the investment return they need. A2Risk offers a tool to assess this, but many companies have their own cashflow modelling tools as well. You will also need to consider other circumstances unique to each client.

In short, the ATRQ can be used as a robust and reliable starting point for discussions with clients about building a suitable investment portfolio.

On occasion, a client may take issue with the output from the ATRQ. It’s important to discuss this with them carefully to understand why they disagree.

You can show adjacent risk categories to the client to see if there is one they would prefer and is more appropriate. Aim to agree on a category that suits the client and that you are comfortable with, too. It’s important that these discussions are documented carefully.

It is essential that, whatever risk profiling tool you decide to use, it is robust and compliant with regulatory requirements.

The FCA’s predecessor, the Financial Services Authority, criticised some risk profiling tools in a detailed report published in 2011. It found that some used vague or imprecise questions, and that advisers often blindly followed the results rather than properly understanding the tools they used.

Following this feedback, at A2Risk we conducted additional robustness checks and we continue to regularly assess our profiling tools using a ‘control’ group created in partnership with national surveying company YouGov.

We have always described the ATRQ as the start of a conversation about risk, rather than a final answer. Speak to us today for more information about how it can help your work in building appropriate investment solutions.