How to assess your client's true risk profile

Risk is a hot topic at the moment. The turmoil on the stock exchange has seen a big increase in market risk while Standard and Poor's has lowered their opinion of the US's credit risk.

The European debt crisis threatens many of the Continent’s banks, heightening counterparty risk and the thin trading volumes through August represent liquidity risk. The property markets are still haunted by default risk and the FSA has taken a dim view of risk profiling tools. While this all sound ominous, the truth is it has very little impact on the average investor; as with so many things, risk is in the eye of the beholder. It is perhaps also unhelpful that the investment industry is wedded to the notion that volatility is analogous to risk. Volatility is a simple measure of mark...