Over half (55%) of investors have a higher suitable risk level than their attitude to risk alone would indicate, according to a new report.
Oxford Risk’s analysis of 87,109 investors found that where suitability is assessed only by reference to attitude to risk, or not modelled systematically, many investors would be placed in portfolios that are too cautious for their overall financial position.
Across those analysed, 55% had a higher suitable risk level than their attitude to risk alone would indicate. One in ten (14%) had a lower suitable risk level than their attitude to risk.
Attitude to risk reflects an investor’s stable, long-term willingness to accept the possibility of lower long-term outcomes for a greater change of higher long-term returns.
Suitable risk level is the risk level appropriate for the investor’s investible assets once attitude to risk is considered along with risk capacity, behavioural capacity, knowledge and experience.
The report warns that advisers who rely on attitude to risk alone may have clients who are left too conservatively positioned if their ‘financial capacity to take risk is not properly captured and systemised’.
It adds that systemic under-risking could also become a drag on AUM growth for advisers.
James Pereira-Stubbs, chief client officer at Oxford Risk, said: “This is not a niche modelling issue. It is a growth, client outcome, and Consumer Duty issue. Firms need to show that they are helping clients take the right level of risk, not simply avoiding excessive risk.
“At scale, small systematic errors in risk matching can compound into material foregone wealth for clients and lower AUM growth for firms. Better suitability is not a brake on growth. Done properly, it is one of the foundations of it.”
Oxford Risk argues that addressing this blind spot means moving beyond risk questionnaires that produce a single score, towards suitability frameworks that combine psychological willingness, total-wealth risk capacity, behavioural resilience, knowledge and experience, and relevant investor preferences.
Oxford Risk analysed 87,109 investors. The model compared projected 10-year outcomes from investing according to attitude to risk alone with projected outcomes from investing according to Oxford Risk’s Suitable Risk Level, using Oxford Risk’s risk-level return assumptions under average and very good market scenarios. The analysis assumes a standard investment value of £100,000 for each investor.