Strategies for Using Sensitivity to Loss

Recognising your client’s Sensitivity to Loss is crucial for building strong relationships that last through bull--and bear--markets. Our research shows that everyone feels those losses slightly differently. That’s why we separate people’s Attitude to Risk from their Sensitivity to Loss so you can better understand and better service your clients.

Sensitivity to Loss is scored from 0-100. Half of clients have a score of 0.

In this article, we explain what the score means (a score of 0 is normal, and a score of 100 is high) and how you can engage with clients once you have this insight.

📄 Download the comprehensive guide for understanding our insights here.


Professor Shachar Kariv explains Sensitivity to Loss

Shachar Kariv, Ph.D. is an acting professor at University of California Berkeley where he was formerly the Chair of the Economics Department. Shachar’s innovations in understanding decision-making behaviour lay the foundation for our Risk Activity and power the insights generated inside of our Risk Profiling Suite. Shachar is a co-founder of Capital Preferences and leads our research agenda as Chief Scientist.

Strategies for clients with low Sensitivity to Loss (Score: 0-20)


50% of clients have a Sensitivity to Loss score of 0. Although nobody likes losing money, clients with low Sensitivity to Loss scores are more comfortable with market volatility and less likely to make emotionally-driven investment decisions.


Recommended strategy for clients with low Sensitivity to Loss

Educated clients are easy clients, so we always recommend reinforcing the fundamentals of your investment philosophy to remind the client that they may experience short-term fluctuations, but will see an increase in investment value over the long-term.


Where appropriate, it may be worth teaching your client about diversification and historic market recoveries, and reminding them that you’re investing for the long-term.

💬 Navigating client conversations: Low Sensitivity to Loss

  1. "Nobody likes losing money and we will always pick high-quality investments that will minimise the risk to your investment."
  2. "Having a low Sensitivity to Loss score provides us with additional options on how to invest your money, and increased confidence that you'll be able to navigate market volatility without making an emotionally-driven investment decision."

Strategies for clients with mid Sensitivity to Loss (Score: 21-40)


50% of clients have some Sensitivity to Loss. These clients may feel uncomfortable during market volatility and may react with emotional-led decision making to limit the decline of their investments value.


Recommended strategy for clients with mid Sensitivity to Loss

In addition to providing the same educational information you provide to all clients, these clients can benefit from having an action plan for market downturns.


Creating a plan to navigate market volatility helps these clients to fall back on some easy-to-follow steps and avoid making emotionally-driven investment decisions. Their plan should include educational materials to reinforce why it’s best to endure the market volatility, and a communication plan for how and when they should get in touch with you.


During periods of market volatility, it’s imperative to be proactive with these clients by reassuring them that they are well-diversified, they are still within the normal range of returns, and that markets generally recover and achieve growth over the long-term.

Strategies for clients with high Sensitivity to Loss (Score: 40-100)


Clients with high Sensitivity to Loss will likely feel uncomfortable during market volatility and may react with emotion and fear-driven decision making to protect their investments value.


Recommended strategy for clients with high Sensitivity to Loss

In addition to providing the same experience we’ve outlined above, we emphasise reaching out to these clients early.


During periods of market volatility, your outreach should reassure them that they are well-diversified, they are still within the normal range of returns, and that markets generally recover and achieve new peaks over the long-term.


It’s important to empathise with these clients as they could be feeling a lack of control, and a fear that their hard work is at risk.

💬 Navigating client conversations: Medium to High Sensitivity to Loss

  1. "Clients with some Sensitivity to Loss may be protective during market downturns and may prefer to sell at a loss to protect their assets, rather than risk a further decline."
  2. "Selling during a market downturn can limit our ability to benefit from a market recovery and can hurt our long-term ability to achieve your goals."
  3. "We will work together to create a strategy that helps you feel comfortable during market downturns while keeping you on track for achieving your long-term goals."

Did this answer your question?

If not, please feel free to reach out to us at customer-support@capitalpreferences.com