Strategies for Using Risk Comfort

Your client’s Risk Comfort is one of the most important factors when selecting a portfolio.

You can achieve the best long-term financial outcomes for your clients by balancing their Risk Comfort with their need for returns to achieve their goals and their capacity to take risk.

In this article, we explain what the score means (a score of 100% is a complete Risk Comfort alignment, and a score of 0% is a complete Risk Comfort misalignment) 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 the importance of balancing a client's Risk Comfort, Goals, and Constraints

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 finding an asset allocation using Risk Comfort

Example mapping of client risk preferences onto an efficient frontier.

We use your capital market assumptions to define your efficient frontier (example shown above), before finding the best possible point for your client. We then measure how closely that point aligns with each of your investable asset allocations.

Example tile showing a client with a Risk Comfort Match of 95% for the Balanced portfolio.

In the above example, the client has the highest Risk Comfort match in the Balanced portfolio, highlighted by the label RISK COMFORT MATCH.


This asset mix has been measured to have the highest utility (read: satisfaction) for the client after considering their decisions, and your capital market assumptions.


If you are considering Risk Comfort alone, this is the correct portfolio selection for the client.

Example tile showing a client with a Risk Comfort Match of 90% for the Growth portfolio.

We provide a Risk Comfort score for every asset allocation or model portfolio you have set up in the Risk Profiling Suite. This means two asset allocations may receive similar scores where the best possible point was at a mid-point between the two options. In this case, you may want to consider other factors when selecting a risk profile to move forward with.


💬 Navigating client conversations: Explaining Risk Comfort

  1. It's important to begin with the fundamentals and explain that markets can be unpredictable. As demonstrated in the Risk Activity, as the potential returns increase, so does the risk.
  2. The purpose of the Risk Comfort score is to go beyond traditional terms like 'Balanced' or 'Aggressive' and provide a mathematical view of each portfolio's risk.
  3. The Risk Comfort score shows how closely the portfolio's combination of risk and reward aligns with their natural comfort and helps you, their adviser, understand how they may react across market conditions.

Strategies for integrating Risk Comfort into a holistic risk profile


In addition to considering your client’s naturally occurring behaviour in their risk profile, a successful financial plan should consider the returns they require to achieve their goals, and any constraints they have when investing.


We’ve created the Goals Projector to help you choose the right risk profile with the client by quickly visualise and explain the relationship between being comfortable and achieving their long-term financial goals.

Example Goal Projector screen for retirement income planning.

In the Goals Projector, you can quickly illustrate how likely they are to achieve their financial goal if they invest where they are naturally comfortable, and you can measure precisely how that comfort will change as they move across the risk-taking spectrum.


This is your opportunity to share how you, as their adviser, support clients throughout their investment journey to remain comfortable--likely through empathetic reassurance and educational resources.


Balancing Risk Comfort and risk required


Each adviser has a different philosophy when it comes to balancing Risk Comfort and goal achievability. Our recommendation is to choose portfolios that have a high Risk Comfort score as this keeps clients happy over the long-term and reduces emotion-led decisions during market volatility.


Some advisers, however, prefer to use the Risk Comfort score to measure the discomfort in the Goal Match portfolio, and then increase their servicing with those clients to increase the client’s natural comfort during market volatility.


Conversely, advisers may choose to reduce the risk they recommend to clients in cases where the client does not need that level of risk to achieve their goal.


Ultimately, the key is ensuring your client understands the risk levels they’re facing and that you have a suitable plan in place to navigate market volatility.

Did this answer your question?

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