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Scientifically valid profiling of the persistent Risk Personality

A set of only sixteen questions allows the valid measurement of the persistent risk personality. The questions are based on scientific research by the Max-Planck Institute and reliably differentiate individual risk types for private investors.

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The implementation of MiFID and the increase of advisory regulation following the financial crisis has strongly shifted the attention of financial service providers to liability issues. One particular outcome are experience-based risk classifications related to product categories, which per se offer little orientation for the client and little guidance for the advisor when it comes to finding the right investment strategy for a particular client.

Integrating the client’s scientifically measured risk personality into the advisory workflow overcomes this weakness of MiFID. It adds a psychological date to the solely legal MiFID profile, allowing a refined strategy or product selection to meet the client’s true risk ability and to let him sleep well.

Risk and Control

Prof. Dr. Dr.  J. C. Brengelmann, Ph.D. (1920-1999), scientific director at the Max Planck Institute, has worked on risk disposition for a major part of his career. tetralog is applying and further re-fining his findings for investment advicsory processes since 1995.

Following Brengelmann, the risk personality in dealing with financial affairs is formed by the interaction of two psychological dimensions, risk and control. These central dimensions have an activating and an inhibitory component.

The risk dimension is defined by risk acceptance (activating) and risk aversion (inhibitory). Risk acceptance includes the general willingness to take risks, the thrill experienced in doing so and the attitude towards speculation. Risk aversion encompasses risk avoidance, uncertainty and insecurity in connection with financial risks and the ambivalence experienced when doing so.

The control dimension is determined by the motivation and ability to deal with, manage and control risk. Active control represents the ability and willingness to optimize and to decide and considers the accompanying feeling of composure. Errors or mistakes in dealing with financial risks result from misscalculations, carelessness and impulsive behavior.