Measuring a client’s risk tolerance is both an art and a science. Beyond assessing how a client feels in the moment, advisors must evaluate a client’s long-term behavioral tendencies, actual risk capacity, and financial goals – all of which require considerable time and skill. These dynamic complexities multiply when working with couples, where each partner has unique preferences and traits and may influence the other’s risk-taking behaviors.
Risk tolerance questionnaires alone often fail to capture the full picture of a couple’s risk dynamics. While each partner may have distinct preferences and traits, their financial decisions are rarely made in isolation. For example, one person may be highly risk-averse, which can pressure the other to take on more risk to compensate for their partner’s behavior. Furthermore, household dynamics often lead one partner to take on the role of “Family Financial Officer”, who drives most of the financial decisions while the other partner remains less involved. Yet, even if one partner isn’t actively managing finances, they are still affected by saving and spending decisions. And, if they feel overlooked – especially in early stages of working with an advisor – it can increase the likelihood of disengagement.
However, risk tolerance assessments can serve as a valuable tool for building goodwill with both partners – and setting the stage for long-term financial harmony. As a starting point, individual psychometric risk assessments can help identify two key considerations: whether there’s a gap between a client’s individual questionnaire score and their stated goals, and whether there are significant differences in risk tolerance between the two partners. From there, the advisor can guide clients in productively navigating these differences.
Advisors may want to ask what the client thought about the risk tolerance assessment, encouraging each partner to share their perspectives on financial risk, their past behavior with risk-taking, and their personal ‘story’ of risk, which can help the advisor better understand how each partner approaches financial decision-making. These conversations also offer an opportunity to discuss preferred communication styles about financial matters (especially in response to market performance). In the short term, focusing on shared priorities can promote alignment, while in the long term, honoring each partner’s risk preferences can lead to more balanced financial decisions and a stronger sense of partnership in managing their wealth.
Ultimately, the key point is that a couple’s risk tolerance is shaped by a combination of personal history, future concerns, and the ways that partners influence each other. Navigating differences in risk isn’t a one-time evaluation but an ongoing conversation. And by proactively addressing these dynamics, advisors can help couples build confidence in their financial decisions and create a strong foundation for collaboration over time!