The development and empirical evaluationof a client/investor risk-tolerance model

[摘要] ENGLISH ABSTRACT: Risk-Tolerance is an influential individual differences factor that determines thecomposition of financial portfolios that are optimal regarding the risk and return forthe investor. At the heart of the financial services sector lie competent financialadvisors. The foundation of any financial plan requires a thorough assessment of theRisk-Tolerance of the client/investor. Relying primarily on demographic andsocioeconomic factors as predictors of Risk-Tolerance could undermine the ability ofthe financial advisor to accurately gauge the baseline degree of Client Risk-Tolerance. This may lead to wrongfully matching a client's objectives with thefinancial plan, which could result in various costly effects. The successful advisor isone who realises that an understanding of the individual he/she is dealing with is justas important as a thorough understanding of the technical aspects of investmentsand the basic nature of investment decision-making. However, since there is noneatly packaged one-size fits all product, the service remains largely dynamic innature – one that needs due consideration to each individual investor's personalcircumstances and preferences. It is argued that the most prudent approach todelivering sound investment advice would rely on the financial advisor's ability toassess and integrate two distinct sets of data pertaining to overall Client/InvestorRisk-Tolerance, that is, the combination of the client's objective risk-tolerance (i.e.selected demographic and socioeconomic variables) as well as his/her subjectiverisk judgment (i.e. selected personality and emotion regulation variables)assessment. This research study aimed to determine how personality and emotionalself-regulation variables (i.e. subjective risk judgment), as well as demographic andsocioeconomic variables (i.e. objective risk-tolerance) could be combined in aconceptual model to differentiate amongst different levels of Client/Investor Risk-Tolerance.A cross--sectional dataset (n = 205) obtained from investors seeking financial advice,was used to fit the structural model via structural equation modelling (LISREL 8.8).Interaction effects were tested with moderated regression. The questionnaireincluded measures of personality, emotion regulation, risk-tolerance, as well as age,gender, education level and annual income. Both the measurement model (p-valuefor test of close fit = .592; RMSEA = .0475, NNFI = .937, CFI = .957, SRMR = .0591)and structural model (p-value for test of close fit = .0644; RMSEA = .0621, NNFI =.892, CFI = .919, SRMR = .0727) attained good fit. The results revealed empiricalsupport for five of the 15 hypothesised paths contained in the structural model. Morespecifically, Sensation Seeking exerted a moderate positive direct influence on Risk-Tolerance. This result supported the argument that individuals with higher levels ofself-reported Sensation Seeking, seeking financially risky experiences andstimulation by definition, will appraise risk as less threatening and anticipate arousalas more positive than their lower Sensation Seeking counterparts. The resultsfurther provided insight into the complexity of the dynamics underlying the differentpersonality and emotion regulation variables contained in the model. For example,Extraversion was found to positively influence Sensation Seeking. This finding is insupport of the notion that extraverts seek situations that provide them with higherlevels of stimulation in order to maintain optimal levels of cortical arousal. Researchhas shown that extraverts are habitually in a state of lower cortical arousal, whencompared to introverts. They tend to have higher sensory thresholds, and thus havesmaller reactions to sensory stimulation, leading them to seek more thereof.Furthermore, Conscientiousness was found to positively influence Delay ofGratification. Consequently, it can be inferred that individuals who are strong willed,cautious and planful with a strong sense of self-discipline will naturally more likelydisplay a superior ability to forego immediate gratification, in pursuit of achievingsomething of greater enjoyment or value at a future point in time. Further to this, theresults revealed that Extraversion and Neuroticism exerted significant influences onEmotional Self-Management. Hence, it can be concluded that Extraversion predictsadaptive emotion regulation strategies, where individuals exhibiting this trait displaythe ability to preserve or savour positive emotions (i.e. Emotional Self-Management).In contrast to this, the results suggested that individuals higher on Neuroticism willmore regularly use maladaptive emotion regulation strategies, and thus make pooruse of adaptive strategies to repair negative emotions, resulting in less reportedEmotional Self-Management. The moderated regression results revealed Gender tobe a significant moderator in the Neuroticism – Risk-Tolerance, and Emotional Self-Management – Risk-Tolerance relationships, respectively. Secondly, empiricalsupport for Income and Education as moderating variables emerged, indicating thatIncome and Education significantly moderated the effect of Emotional Self Management on Risk-Tolerance, respectively.The research results provided some insights into the relevant factors that can beused to judge Client/Investor Risk-Tolerance. A practical implication of the results isthat this information can be used to classify investors into four different clientcategories or profiles that are clearly distinguishable in terms of their personalcharacteristics. Each profile raises unique needs warranting different actions on thepart of the financial advisor.A successful financial advisor is able to transfer technical knowledge attainedthrough comprehensive financial education into a coaching or counselling approachthat enables the investor to make an investment decision that balances maximal gain(financially) with maximal security (emotionally). Investors should be encouraged totake the maximum amount of risk given their unique combination of objective andsubjective characteristics. How the advisor goes about pursuing this requires anunderstanding of individual differences and other socio-demographic variables, andthe ability to use these as a means of screening the client into the correct clientcategory, and provide the associated supporting actions.

[发布机构] Stellenbosch University