Risk Profiler

Yes. The questionnaire design has many rigorous steps which are outlined below. More details can be seen in in the EV factsheet.

• Review the bank of questions available to ensure suitability for the expected user base 
• Trial the questions with clients receiving advice 
• Assess the questionnaire validity using statistical analysis 
• Select the questions to ensure the range 
• Allocate the scoring algorithm using independent expert groups 
• Retest the questionnaire to ensure statistical robustness.

Chosen questions:

• Are clear 
• Avoid complex language  
• Don't require prior investment knowledge 
• Are not biased in the way they ask the question 
• Are tested to be statistically proven to be representative of a client's risk 
• Cover areas of emotional, scenario setting, past behaviour and self-assessment 

The answer to each question is given a score, which when totalled is compared against a score card to identify the risk category. EV also provide further detail on where within the risk profile banding the result lies.

The questionnaire is intended only as a starting point for discussion - it is important to document the reasons if the final risk profile is different from the calculated profile. In particular, the questionnaire is not designed to identify no-risk investors so this should be covered as part of the overall advice process.

The questionnaire is slightly longer than strictly statistically necessary to ensure that it is not too reliant on any one particular question. EV statistically check the reliability of the questionnaire to ensure that there are sufficient questions to make the questionnaire valid, but not so many that the experience for the customer is degraded.

EV use Standard Error of Measurement (SEM) which provides an indication of how much scores for people with the same attitude to risk might vary. It’s expressed as points on a scale for each questionnaire. There is a less than 5% chance that a person’s real score is more than 2 SEMs from their observed score, and 67% chance it’s within 1 SEM.  

The questionnaire has an SEM score from around 2.5 for this risk profiler.  

The SEM reduces with higher reliability but increases with greater score variance so the right balance has to be provided.

The questionnaire will be suitable for a large proportion of clients. It is intended for those who wish to invest and is not suitable for clients who have no requirement or ability to take any investment risk on their portfolio. The trials for the standard questionnaire have been based on UK investment clients being provided advice. It can also be used in similar territories.

An individual's attitude to risk is not considered to be dependent on the age of an investor. Clearly when the product and investment choices are considered age will be one of the additional factors which should be included.

The result of the profiler measures the attitude to risk of the investor at that particular point in time. Attitudes can change over time due to many factors, from the wider economic outlook to individual experiences. Therefore, the assessment should be reviewed as required to ensure the risk profile is current during any subsequent advice.

Questions are multiple choice in format – respondents choose the response which best reflects their feelings or views. Different types of questions are used, such as asking for level of agreement with a given statement (Likert Scale) or providing various responses to situations. Questions are balanced for direction. For example, respondents are asked whether they agree with statements that reflect both cautious and adventurous approaches to risk. 

Questions were chosen to include a range of question content, good psychometric properties and to differentiate across the different risk levels.

Question Type

Question	Content type
1.	Emotion
2.	Self-Assessment
3.	Self-Assessment
4.	Behaviour
5.	Self-Assessment
6.	Emotion
7.	Scenario
8.	Self-Assessment
9.	Emotion
10.	Scenario
11.	Self-Assessment
12.	Emotion
13.	Self-Assessment

 

EV outcomes	ESMA risk scores	ESMA mapping
1 Low	1-2.5%	1,2
2 Low-medium	2.5-3.5%	3
3 Medium	3.5-4.5%	4
4 Medium-High	4.5-5.5%	5
5 High	5.5+%	6,7